To Fight Obamacare Fraud, Fund Obamacare

Real people only, please.

Photographer: Andrew Farrer/Bloomberg

While Obamacare is still a long way from providing insurance to every American who needs it, the program is apparently pretty good at covering people who don't exist.

Eleven out of 12 fictitious people obtained coverage, plus federal subsidies to help them pay for it, in a test of Obamacare's anti-fraud measures conducted by the U.S. Government Accountability Office. And all 11 of those nonpeople were automatically re-enrolled for the following year. Some even got bigger subsidies.

QuickTake Health Insurance Exchanges

Given that the subsidies for Americans buying health insurance on state and federal exchanges are projected to reach $100 billion annually by 2025, the potential for fraud that the GAO has uncovered is intolerable.

How could it happen? To qualify for subsidized Obamacare coverage, you need to be a citizen or legal immigrant, with income below 400 percent of the federal poverty level. Supposedly, the government verifies each applicant's Social Security number, citizenship status and other information. Yet when the GAO investigators made their fake applications using bogus or incomplete documents, or no documents at all, they were able to sign up, obtaining about $30,000 in annual federal subsidies.

The weak link, the GAO concluded, was phone registration. People who call in to sign up don't need supporting documentation. The U.S. Centers for Medicare and Medicaid Services (CMS), which is responsible for the exchanges, is supposed to request that information later, but those requests weren't always clear. And when the GAO's fictitious applicants provided no documents, they got subsidies anyway.

Some of this might have been expected. Obamacare is an enormous undertaking, requiring various government agencies to share data across various networks. And in setting up the Obamacare systems -- and after the debacle of the website's launch -- CMS officials prioritized ease of access over detection of fraud.

CMS needs to make a greater effort to determine whether people qualify, even if it means slowing applications. To this point, the contractor that CMS hired to process documents hasn't been required to try to detect fraud -- only to check whether applicants' documents "have obviously been altered."

The Internal Revenue Service should be the backstop against fraud, by checking the tax returns of subsidy recipients to see that they qualify. (All recipients are required to file.) The GAO's fictitious enrollees failed to even file tax returns, and that should have eventually alerted the IRS to the problem. Unfortunately, thanks to $1.2 billion in budget cuts since 2010, the IRS is ill-equipped to investigate such problems.

A majority-Republican Congress isn't eager either to make Obamacare work better or to give CMS and the IRS the resources they need to root out false claims. In this case, however, lawmakers should make an exception. Preventing fraud shouldn't be a partisan issue. 

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.