States Argue Enhanced Obamacare Subsidies Not The Cause Of Fraud

Republicans argue that enhanced Obamacare subsidies need to die, partly because they have fueled an explosion of fraud.

Officials with the state-run health care exchanges say they haven’t experienced that problem.

Fraud is primarily an issue on the federally run exchanges, HealthCare.gov, due to lax enrollment verification and other systemic problems, state officials counter. Most of the 20 states that run their own exchanges have done a much better job of fraud-proofing, they and health policy experts say.

“I don’t think that our experience or our data shows there has been any increase in fraud … before or since the enhanced premium tax credits,” said Jessica Altman, executive director of the exchange Covered California. A spokesperson for Kentucky’s insurance exchange also said in a statement it did not receive any consumer complaints from 2023 to 2025, even as complaints to HealthCare.gov surged.

The disparity raises a question for some health policy experts: Why doesn’t the federal government do more to fix the fraud on its exchanges, building on its current efforts, instead of throwing out the enhanced subsidies because of fraud?

Without the subsidies, premiums will spike, leading some families to drop coverage altogether, said Sabrina Corlette, a research professor with Georgetown University’s Center on Health Insurance Reforms.

“If you have a problem with car thieves in your community, the policy solution is not to make cars more expensive for residents to buy,” Corlette said.

Corlette and others, including congressional Democrats, suggest that opposition to the enhanced subsidies has more to do with Republicans’ ideological resistance to publicly funded health care — and scorn for Obamacare in particular — than concerns about fraud.

The fixation on fraud, Corlette said, “is a red herring.”

Most congressional Republicans are starting to coalesce around letting the enhanced subsidies expire at the end of the month. If that happens, the health policy research firm KFF estimates that enrollees on average would see their annual premium payments more than double, to $1,904 in 2026.

On Thursday, the Senate will vote on two proposals. One is a three-year clean extension of the subsidies led by Democrats. Another is an effort led by GOP Sens. Bill Cassidy of Louisiana and Mike Crapo of Idaho that gives Obamacare customers a government-funded health savings account and eliminates zero-dollar premium plans.

House GOP leadership pushed a menu of options during a closed-door meeting Wednesday, none of which is a subsidy extension. The options include HSAs, which their sponsors say would be more fraud-resistant than the enhanced subsidies.

By greatly expanding the number of fully subsidized plans — in which enrollees do not have to pay a premium — conservative experts argue that Democrats’ introduction of the enhanced subsidies in 2022 opened the door to more fraud because bad actors can sign people up without their knowledge and pocket the commission.

They point to what they call “phantom enrollees” who don’t make any insurance claims as evidence that rogue agents or brokers signed people up without their consent.

“By making zero-dollar plans widely available, the enhanced ACA subsidies invited fraud, waste and improper payments,” said Brian Blase, director of the influential conservative health policy think tank Paragon Health Institute.

Altman countered: “If enhanced tax credits were the problem, you would see that level of rampant fraud in every marketplace across the country,” not just primarily on the federal exchanges.

Major differences

HealthCare.gov, which residents in 30 states use to sign up for a plan, has seen a spike in recent years in fraudulent signups. In 2023, the Centers for Medicare and Medicaid Services, which oversees the federal exchanges, received an increase in consumer complaints for unauthorized plan switching.

“It did turn out that there was this small percentage of very bad actor agents and brokers,” said Ellen Montz, a managing director with the consulting firm Manatt Health. She previously was director of the Center for Consumer Information and Insurance Oversight, an office within CMS that regulates the exchanges, during the Biden administration. Exact figures for 2023 were unavailabe.

From January to August 2024, the agency received 275,000 consumer complaints surrounding HealthCare.gov. Of those complaints, 183,553 were for unauthorized enrollments and 90,376 for plan changes, according to the data released in October 2024. About 17 million people were signed up for Obamacare on the federal-run exchange for 2025.

Beginning last year, CMS began employing more fraud-fighting strategies.

In 2024, HealthCare.gov began requiring agents or brokers to verify identities on a joint call with the CMS call center and the consumer before switching any plan, Montz said.

Last November, the agency also began requiring that individuals being enrolled in a plan through a broker or agent have a verified Social Security number.

The agency also finalized a rule this year that went into effect in August that targets fraud by increasing eligibility checks on consumers and removing a special enrollment period for low-income customers. However, a federal judge paused parts of that rule, including a requirement to deny coverage to consumers for lapsed premium payments.

CMS suspended 850 brokers in 2024 for suspicious activity, but reinstated them this year – an action that drew the ire of some Democrats. Rep. Lloyd Doggett (D-Texas) wrote to CMS earlier this week in protest.

“No meaningful justification was offered for reinstatement,” the letter said.

CMS said it continues to monitor the brokers and agents for compliance and is “working to further strengthen our regulatory authority and oversight tools to take enforcement actions.”

The 2025 data for complaints has not been released, so it’s unclear whether the new measures have reduced fraud.

Montz said that HealthCare.gov remains behind most of the 20 states and Washington, D.C., which run their own exchanges, in preventing fraud.

There is a key difference in the way the state-run exchanges operate their portals.

The vast majority of the states and Washington directly operate the portals that brokers and agents use to sign people up for plans. 

“It is tightly controlled, both in tech and regulation,” Montz said.

For instance, if a broker or an agent wants to enroll a customer, they must either make a three-way call between the state and the customer or provide additional information to receive their commission.

Altman said that identified instances of fraud at her exchange are “incredibly rare.”

By contrast, the federal exchanges do not operate theirown portals. It allows private contractors to set up portals for agents and brokers, so it lacks direct oversight.

Blase said that state-run exchanges have stronger guardrails than HealthCare.gov, but the problem of zero-dollar premium plans remains.

Push for HSAs

Blase said in response to a list of questions from POLITICO that Cassidy and Crapo’s bill is better than maintaining a status quo that has encouraged fraud.

“The policies take reasonable steps to reduce distortions, strengthen program integrity and shift resources toward people rather than insurers,” he said.

Cassidy has said that the shift to HSAs will help prevent fraud because customers must directly provide information to get an HSA, ensuring that a broker or agent cannot sign someone up without their knowledge to earn a commission.

“To get an HSA, [brokers] are under requirements to know the customer,” he told POLITICO on Tuesday.

Blase pointed to federal data showing that, in 2024, nearly 40 percent of fully subsidized ACA enrollees —12 million people — had no medical claims, twice the percentage compared with 2021. He said that in the employer market, the figure is only 15 percent.

“That sharp divergence, especially following the introduction of enhanced subsidies, suggests widespread improper and fraudulent enrollment,” he said.

Blase estimates that about half of the zero-claim individuals are phantom enrollees.

Federal watchdog the Government Accountability Office released a report on Dec. 3 showing that a small number of people could sign up for coverage on HealthCare.gov in 2024 and 2025 without verification of their information.

But some experts have pushed back on the idea that letting the subsidies expire is the best way to address fraud.

“It’s true that one of the ingredients in the fraud schemes we’ve seen is that some enrollees are eligible for zero-premium coverage,” said Matthew Fiedler, a senior fellow with the Brookings Institution, a center-left think tank. “But many low-income enrollees would qualify for zero-premium bronze [metal tier] plans even without the enhanced credits.”

Bronze is one of several tiers of plans that consumers can choose from. Under Cassidy and Crapo’s bill, it’s the only tier that would include an HSA.

Several Republican proposals also require all enrollees to pay some form of a premium.

Fiedler said in a statement that a crooked broker could still pay a small premium to fraudulently enroll someone in exchange for a commission.He also added that it is common for insured people to have no claims in a year and said the ACA market rate could be higher because most enrollees only sign up for part of the year.

“To be clear, there are coherent arguments for letting the enhanced credits expire — albeit ones I don’t necessarily agree with,” Fiedler said. “But if the goal is fighting fraud, eliminating the enhanced credits is a poorly targeted and ineffective way of doing that.”