Opposition to tax credit built on 5 fatal flaws

Critics of the health care tax credit keep talking about enrollment fraud as their main reason for opposing an extension. But they fail to acknowledge that the Trump Administration, in partnership with Congress, has already taken significant steps to fix challenges of the past. Here are the five fatal flaws in the most widely cited analysis from critics. 

1. Critics are using badly outdated data, ignoring strong actions taken by the Trump Administration to ensure the integrity of the marketplaces. The Blue Cross Blue Shield Association (BCBSA) called for many of these solutions more than a year ago, solutions that have been trumpeted as victories by groups that have previously raised concerns. The Centers for Medicare and Medicaid Services (CMS) and Congress have: 

• Imposed stricter oversight of the agents and brokers selling through the federal marketplace where fraud was highest.

• Ended the year-round special enrollment period for low-income enrollees that agents and brokers were abusing to enroll consumers without their knowledge.

• Required agents and brokers to go through the marketplace call center to change consumers’ plans.

• Added tighter eligibility and verification requirements, including requirement for applicants’ social security numbers to qualify and requirement for consumers to fully repay tax credits if they misestimate their income.

• This summer, CMS identified individuals enrolled in both Medicaid and a subsidized marketplace plan and ended their health care tax credits. CMS now performs regular checks for duplicate enrollments.

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2. Critics overstate the number of enrollees without claims. Critics rely on risk adjustment submission files, which count every enrollment action a person takes, not the number of unique enrollees. With that flawed method, an individual who enrolls in a plan in January and switches in July would be counted as two enrollees.

• It is common for marketplace enrollees to be auto-renewed into January coverage and then switch plans in January before open enrollment closes. The CMS risk adjustment data counts those switches as year-long enrollments without claims, when in fact, they were only one-month long.
• According to CMS, roughly 46% of Marketplace enrollees were auto-renewed into coverage last year. Assuming half of them switched plans in January, this would add almost 5 million enrollees without claims to CMS’ risk adjustment data.

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3. Critics misunderstand how young people use insurance. 

• It is common for people with health insurance to never file a claim. In the employer market, where 164 million people get their coverage through work,¹ more than 1 in 5 enrollees have no claims, with those ages 18-34 representing the majority.^2,3 In our own data, among people with coverage for more than 6 months, in 2023 the percentage of individuals without claims on the marketplaces (18%) was similar to employer-provided coverage (16%). We don’t yet have full access to our 2024 data, but we expect similar results in that year.
• One would expect a higher rate of people with no claims in the individual market because people rely on this market when they are transitioning from other sources of coverage (e.g., young adults leaving a parents’ plan, people between jobs and early retirees). These people may not incur claims because they are enrolled for shorter periods of coverage.

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4. Critics misunderstand the benefits of having a large number of young people with health insurance. Healthy people in the risk pool helps everyone. Insurance markets need people without claims to make coverage affordable. Costs for a NICU stay for a premature baby with congenital conditions can exceed $1 million. You’d need about 167 people with zero claims to cover the cost for that one premature baby.

But even if we were to take critics’ flawed analyses at face value, what would that imply? If it were true that 40% of enrollees have no claims, then removing them from the market wouldn’t reduce the benefit costs of the risk pool by a single dollar—but it would reduce the premiums collected by approximately 40%. The cost of coverage would have to be spread over the remaining enrollees, which would require a premium increase of over 60%. Is that really what critics want?

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5. Critics are getting income reporting wrong.

• While critics have suggested millions of Americans deliberately report inaccurate incomes to qualify for health care tax credits, their analyses are based on a comparison of marketplace plan selections to self-reported income from survey data collected by the Census Bureau.
• Self-reported income is unreliable as surveys often struggle to capture information on individuals with low incomes, leading to inflated estimates of fraudulent enrollment.
• In fact, looking at actual tax data—rather than survey data—the overall accuracy of health care tax credit payments is extremely high, with an improper payment rate of only 1.6%.⁴
  

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Recent papers purporting to have identified widespread fraud completely ignore alternative explanations. These papers purport to show rampant fraud, primarily in states that haven’t expanded Medicaid like Florida and Texas. Are constituents in these states more likely to be fraudsters? Likely not. So, what are some alternative explanations for the recent observed increase in the number of enrollees who have not submitted any claims?

• Lower premium costs with the health care tax credit encouraged more young and healthy people to enroll. These younger and healthier people are less likely to seek medical care.
• Medicaid unwinding, especially pronounced in non-expansion states, resulted in more people enrolling in individual insurance, and for only part of the year, making it less likely that these enrollees would have generated claims. Roughly two-thirds of Affordable Care Act enrollment gains over the past three years have been in states that have not expanded Medicaid.
• In past years, the federal marketplace, which is more commonly used in states that have not extended Medicaid, allowed low-income people to change coverage each month, resulting in more partial year enrollments. Under the Trump Administration, the federal marketplace has now tightened rules to assure verification of eligibility and prevent people from switching coverage on a monthly basis. To the extent that there ever was a fraud problem, that problem has been addressed.