Money for nothing?

Add Fraud to the List of Obamacare Disasters

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
Read More.
a | A

The Government Accountability Office sent out investigators to check how easy it is to fraudulently qualify for subsidies on the Affordable Care Act's insurance exchanges. Here's what they found: It's astonishingly easy, at least on the federal marketplace:

  • For 12 applicant scenarios, GAO tested "front-end" controls for verifying an applicant's identity or citizenship/immigration status. Marketplace applications require attestations that information provided is neither false nor untrue. In its applications, GAO also stated income at a level to qualify for income-based subsidies to offset premium costs and reduce cost sharing. For 11 of these 12 applications, which were made by phone and online using fictitious identities, GAO obtained subsidized coverage. For one application, the marketplace denied coverage because GAO's fictitious applicant did not provide a Social Security number as part of the test.
  • The Patient Protection and Affordable Care Act (PPACA) requires the marketplace to provide eligibility while identified inconsistencies between information provided by the applicant and by government sources are being resolved through submission of supplementary documentation from the applicant. For its 11 approved applications, GAO was directed to submit supporting documents, such as proof of income or citizenship; but, GAO found the document submission and review process to be inconsistent among these applications. As of July 2014, GAO had received notification that portions of the fake documentation sent for two enrollees had been verified. According to CMS, its document processing contractor is not required to authenticate documentation; the contractor told us it does not seek to detect fraud and accepts documents as authentic unless there are obvious alterations. As of July 2014, GAO continues to receive subsidized coverage for the 11 applications, including 3 applications where GAO did not provide any requested supporting documents.
  • For 6 applicant scenarios, GAO sought to test the extent to which, if any, in-person assisters would encourage applicants to misstate income in order to qualify for income-based subsidies. However, GAO was unable to obtain in-person assistance in 5 of the 6 initial undercover attempts. For example, one in-person assister initially said that he provides assistance only after people already have an application in progress. The in-person assister was not able to assist us because HealthCare.gov website was down and did not respond to follow-up phone calls. One in-person assister correctly advised the GAO undercover investigator that the stated income would not qualify for subsidy.

It sounds like the systems that are supposed to check identity, immigration status and income simply aren't working at all; the system just assumes that you are who you say you are.

This isn't the only major part of the system that's still missing; as the Official Blog Spouse reported last week, the system that pays insurers still seems to be MIA. Presumably, the emergency team called in to fix the exchanges prioritized the bits that the public could see, leaving everything else for later. Compared to what was described by the Barack Obama administration (and the law), the system still seems to be half-built.

How much does this matter? Obviously, all the GAO can say is that this is possible; we don't know whether, or how often, such fraud has actually occurred. Even if you get an insurance card fraudulently, how easy would it be to use without ever being asked for picture ID? How many people would go to the trouble of faking or altering documents? And might the subsidies be taken away after review? We simply don't know.

Still, it's obviously troubling that people could so easily fraudulently obtain government subsidies, because the incentive to do so is obvious: free money from the government. It's also troubling because it makes one wonder what other major parts of the system simply aren't working.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
Brooke Sample at bsample1@bloomberg.net