Undercover investigators working for the Government Accountability Office were able to receive approximately $30,000 in Advance Premium Tax Credits for health insurance after setting up a dozen fictitious accounts.

According to a report that the GAO produced for the Senate Finance Committee, the Centers for Medicare & Medicaid Services nevertheless approved 11 of the 12 fictitious applicants, even after an earlier report last year by the GAO about the fake accounts.

Last year, as part of a “secret shopper” investigation, the GAO created 12 fictitious identities to apply for premium subsidies through the federal health insurance marketplace, by telephone or online (see GAO Finds It Easy to Fake Applications for Health Insurance Premium Tax Credits). The GAO found the federal exchange approved 11 out of 12 telephone and online applications for fictitious applicants. The government paid $2,500 per month, or $30,000 per year, in tax credits for insurance policies for these fictitious individuals. 

The investigators provided fake documents, including Social Security Numbers and proof of income and citizenship, which proved to be no barrier to obtaining taxpayer-funded credits. Investigators found federal contractors made no effort to authenticate documents applicants provided. 

All 11 fictitious applicants maintained coverage and subsidies throughout last year. In one case, the GAO received a letter threatening to terminate coverage based on incomplete or inaccurate documentation, but nothing happened. The health coverage and tax credits both continued.

At the end of 2014, all 11 fictitious applicants were re-enrolled for the following year. The federal exchange did not detect the fact that some of these fake applications contained fabricated documents or that others were missing documents. Some of the applications were approved for coverage and tax credits based solely on the fictitious applicant’s attestations, without any supporting documentation at all. In addition, the marketplace sent incorrect 1095-A tax forms for three of the eleven fictitious applicants.

At the beginning of 2015, coverage continued for all 11 fictitious applicants. Then, six of the 11 applicants received notices that they were being terminated based on their failure to submit information or documentation with a new application, even though the GAO had not submitted any new applications. After calling the marketplace, GAO was able to have five of the six fictitious applicants reinstated, with greater subsidy amounts.

The GAO also found that some official correspondence from the marketplace was confusing and in some cases made references to impossible events. For example, at least one health insurance marketplace letter referenced a fictitious applicant’s tax return, which did not exist. Another marketplace letter had conflicting information in different paragraphs.

The GAO found that federal contractors continued their practice of accepting documents as true without attempting to verify a document’s authenticity unless there were obvious alterations. The contractors said this policy originated with the Centers for Medicare and Medicaid Services. A year after the GAO made its initial findings, there still appears to be no system in place to catch missing or fabricated documentation, the Senate Finance Committee noted. Given the absence of a system to detect fraud, CMS reports that its contractors have not referred any instances of fraud for investigation.

The Senate committee held a hearing Thursday to discuss the findings of the report. “Since the federal exchange was first implemented, success has been measured by the number of applicants that have signed up for insurance,” said Senate Finance Committee chairman Orrin Hatch, R-Utah, in his opening statement. “Indeed, last year, when the administration reached its initial enrollment goal, critics of the law were told that we had been wrong all along and that the law was, despite all the evidence to the contrary, working just fine. However, with these findings from GAO, it seems obvious, at least to me, that the administration has been preoccupied with signing up as many applicants as possible, ignoring potential fraud and integrity issues along the way.”

Sen. Ron Wyden, D-Ore., the ranking Democrat on the committee, emphasized that the applicants were all fictitious and did not go through all the fraud checks. “This study looks at a dozen fictitious cases—and not one of them was a real person who filed taxes or got medical services,” he said. “No fast-buck fraudster got a government check sent to their bank account. Moreover, the government auditors acknowledge today that their work, quote, ‘cannot be generalized to the full population of applicants or enrollees.’ None of the fictitious characters in this study stepped foot in a hospital or a doctor’s office. And the fact is, when you actually show up for medical services, it’s a lot harder to fake your way into receiving taxpayer-subsidized care. Often before any services are delivered, providers ask for a photo I.D. with an insurance card. And if you’ve stolen an identity, there’s probably a medical history belonging to somebody else that should set off alarm bells. If you’re a real person signing up in the insurance marketplace, you have to attest under penalty of perjury that the information you provide is correct. And if you falsify the application, you face the prospect of a fine of up to $250,000.

"Another big anti-fraud check went untested in this study," Wyden added. "That is, squaring up tax returns with the information from your insurance application. The GAO’s testimony today calls it a, quote, ‘key element of back-end controls.’ If your tax return and personal info don’t match, the gambit’s up. But the study before us today ignores that anti-fraud check. It looks at only part of the picture when it comes to stopping fraud.”

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