Understanding Fraud in Federal Health Insurance Programs

There’s a well-known saying: no one spends a dollar better than the person who earned it. This saying really highlights a significant issue—massive fraud and improper payments that affect federal health insurance programs, ultimately raising costs for taxpayers.

A report from the Government Accountability Office (GAO) reveals some shocking figures. Over 95% of the fake applications the GAO submitted for Obamacare were approved, allowing insurance companies to collect thousands of taxpayer dollars each month for individuals who didn’t even exist.

This GAO report uncovers the serious negligence and, frankly, the questionable incentives at play when the government offers taxpayer money to those who haven’t earned it. For instance, agents and brokers earn commissions from insurance companies for enrolling individuals—whether real or not—into federal health plans. In fact, most Obamacare enrollments involve an agent or broker.

Additionally, insurance companies can receive upwards of $10,000 per year for each individual, real or otherwise, enrolled in their plans. For example, when GAO attempted to enroll four fake applicants for 2024, two were flagged by automatic identity checks. Yet, they were later approved after submitting falsified identification documents, including phony citizenship papers.

In the remaining two cases, brokers assisted in enrolling fake applicants. Initially, the system flagged their Social Security numbers as unverified. However, once GAO’s fake applicants allowed brokers to proceed, these brokers worked with the Marketplace Call Center—without the applicants’ involvement—to submit applications using invalid Social Security numbers.

The GAO noted, “We were either not asked to provide documentation or generally did not submit what was requested, yet our fictitious applicants received subsidized coverage…” It appears that sometimes, rather than catching fraud, Obamacare’s detection systems actually produced false verifications. In one instance, the federal Marketplace claimed it had verified an applicant’s estimated income based on submitted documentation—but no documentation was ever provided.

Often, basic checks are overlooked. Social Security numbers serve as unique identifiers intended to prevent fraudulent enrollments using stolen identities, and they also help ensure the accuracy of payments linked to income. Yet, GAO’s examination revealed that 32%—or $21 billion—of tax credits in 2023 lacked proper reconciliation between income data and Social Security numbers.

Additionally, while the same Social Security number should help prevent individuals from being enrolled more than once, GAO found more than 29,000 Social Security numbers that had over 365 days of coverage in 2023 and over 66,000 that were enrolled multiple times in 2024.

One particularly alarming case involved a single Social Security number being used for subsidized coverage across over 125 policies, accumulating coverage for over 26,000 days—effectively over 71 years—in just one year.

Moreover, GAO found over 7,000 cases where individuals enrolled in Obamacare were listed in death files prior to their enrollment applications. Payments were still made to brokers and health insurance companies for these deceased enrollees.

Aside from the fake enrollments, the report also pointed out that brokers often make unauthorized changes to individual insurance plans—typically benefiting them financially—without the individual’s consent. GAO identified at least 160,000 applicants, about 1.5% of those relevant, likely had their plans altered without permission in 2024. This aligns with a CMS report noting over 90,000 complaints in the first eight months of 2024 regarding unauthorized changes to Obamacare plans.

Unfortunately, fraud, abuse, and improper payments aren’t just limited to Obamacare; they’re widespread within the federal government and have been increasing significantly alongside rising federal spending. Last year, the government reported $162 billion in improper payments across reviewed programs. However, this is likely an undercount, as programs often aren’t audited thoroughly. For example, a study suggested that reported improper payments in Medicaid are only half the more realistic total of $1.1 trillion over the last decade.

Lawmakers can and should take action to protect taxpayer spending integrity. This includes avoiding the extension of temporary COVID subsidies that have spiraled in costs and unnecessarily fueled insurance companies’ profits. Ultimately, it requires scaling back the federal government; the more opportunities there are for fraud, the more likely it is that scammers will take advantage.