Two federal courts of appeals have issued contrary opinions on whether the Affordable Care Act (ACA) authorizes subsidies for enrollees on federally established health-care exchanges. The Supreme Court will ultimately decide if these subsidies are legal. But in the meantime, a just-released Government Accountability Office (GAO) report suggests that the procedures for determining eligibility for insurance and subsidies on the federal exchange are inadequate and prone to fraud.
The ACA established health-insurance exchanges to create marketplaces for individuals and employers to shop for health plans offered by private insurers. ACA section 1311 delegates responsibility for establishing these exchanges to the individual states. But section 1321 provides that, if a state doesn’t create an exchange, the federal government “shall . . . establish and operate such Exchange within the State.” Only 14 states and the District of Columbia set up their own exchanges. The federal government established exchanges in the remaining 36 states through its website, HealthCare.gov. Of the more than 8 million people who have signed up for plans through an exchange, 5.4 million did so through the federal exchange.
Section 36B of the Internal Revenue Code, enacted as part of the ACA, provides subsidies (tax credits) to individuals who purchase insurance through exchanges “established by the State under section 1311” of the ACA. While this would seem to preclude subsidies for individuals purchasing insurance through the federal exchanges, the Obama administration, through a 2012 IRS regulation, interpreted section 36B as allowing tax credits for insurance purchased on either state or federally established exchanges. Currently, 86 percent of federal exchange enrollees are receiving subsidies.
The nonpartisan GAO studied the controls in the federal exchange that determine eligibility for enrollment and subsidy. To enroll, an individual must be a U.S. citizen or a legal resident residing in the marketplace service area. To qualify for a subsidy, an individual must meet income requirements (between 139–400 percent of the federal poverty level) and must not be eligible for coverage under another qualifying plan—such as affordable, employer-sponsored coverage or a government program, such as Medicaid or Medicare.
Creating 18 fictitious applicants, some with invalid or nonexistent Social Security numbers and others who were noncitizens claiming lawful presence in the U.S., the GAO applied for subsidies through federal exchanges in several states via telephone, online, and in-person. For 11 out of the 12 applications made by phone or online, the GAO obtained subsidized coverage. (The only failed applicant declined to provide a Social Security number and was not allowed to proceed.) The marketplace requested supplementary documentation for 10 of the 11 approved applications. The GAO provided no documentation for three and counterfeit or partial follow-up documentation for the other seven. In the three months since, two of those seven applicants were notified that their proof of citizenship or immigration status had been verified; one also had his identity verified. Coverage remains in effect for all 11 approved applicants, even the three who never submitted documentation.
These results shouldn’t be surprising. The outside contractor used by the Centers for Medicare and Medicaid (CMS) to process submitted documentation has identified 4.3 million application inconsistencies and has in its possession hundreds of thousands of “orphan” documents that can’t be matched to an application. The contractor does not certify authenticity, engage in fraud detection, or use outside sources to confirm submitted documents. It merely confirms that submitted documents are legible and not obviously altered.
The federal exchange is not only poorly administered; it is also difficult to access. The GAO sent the remaining six fictitious applicants (the ones who hadn’t sought coverage online or by telephone) to test for income-verification controls by seeking in-person advice on how to report their incomes in order to obtain subsidies. Despite repeated attempts, the GAO couldn’t get such assistance for five of the six, for various reasons—problems with the HealthCare.gov website or service representatives’ inability or unwillingness to help them. Only one of the six fictitious in-person applicants was able to access a service representative, who correctly advised him that his income would not qualify him for a subsidy.
The Obama administration’s attempt to extend subsidies to federally established exchanges, despite clear language in the ACA limiting subsidies to state-created exchanges, is typical of the haphazard and arbitrary way the ACA has been implemented. The GAO study suggests that the federal exchange that has enrolled the majority of exchange participants has fundamental problems. And, in a separate report released last week, the GAO “found that CMS undertook the development of Healthcare.gov and its related systems without effective planning or oversight practices, despite facing a number of challenges that increased both the level of risk and the need for effective oversight.” Unless these problems are fixed, the federal exchange is likely to be an expensive fiasco, enrolling people who are not eligible and providing subsidies to people who shouldn’t get them.