GAO Launched an Obamacare Sting Operation—and Almost All Fake Insurance Applications Were Approved

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The report suggests the health care law’s eligibility verification system isn’t working.

By Sophie Novack
Follow on TwitterJuly 23, 2014

An undercover operation found that the majority of fake Obamacare applications submitted were approved by the health law’s enrollment system.

Fake applicants were able to get subsidized insurance coverage in 11 of 18 attempts, according to a report from the nonpartisan Government Accountability Office. The agency conducted the sting operation to test the strength of the Affordable Care Act’s eligibility-verification system.

The findings will be discussed at a House Ways and Means hearing Wednesday. They were revealed in an advance copy of the testimony from Seto Bagdoyan, head of GAO’s Forensic Audits and Investigative Service, provided to the Associated Press.

The undercover investigators created fake identities by inventing Social Security numbers, income, and citizenship, and by counterfeiting documents.

Eleven of 12 fake online or telephone applications were approved, according to Bagdoyan. Five of six phone applications were successful, with the exception of one caller who declined to give a Social Security number. Six online applications were initially blocked by the verification system, but the investigators were able to find a workaround by going through the call center.

“The total amount of these credits for the 11 approved applications is about $2,500 monthly or about $30,000 annually,” Bagdoyan said, according to a report from NBC. “We also obtained cost-sharing reduction subsidies, according to marketplace representatives, in at least nine of the 11 cases.”

The investigators did not have the same luck with in-person assistors: They were unable to get help in five of six cases, and the last was told by the assistor that the income reported was too high for subsidized coverage.

The accuracy of the health law’s eligibility verification system has been an ongoing concern among lawmakers and officials, and Republicans have repeatedly pointed to it as evidence that the law leaves the government vulnerable to fraud.

The GAO investigation was requested by several Republican senators and representatives before the insurance exchanges launched in the fall, according to The Washington Post.

The administration, meanwhile, maintains that it is working to improve the process.

“We are examining this report carefully and will work with GAO to identify additional strategies to strengthen our verification processes,” said administration spokesman Aaron Albright.

Poor baby: Rep. Kristi Noem sums up how the national debt affects you in one photo

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BY: Blake Seitz July 22, 2014 | 5:21 pm

Deficit hawks like to say that reckless government spending is mortgaging our children’s future. Rarely do they capture this as vividly as Republican Rep. Kristi Noem of South Dakota.

Noem sent a lighthearted tweet Tuesday about an unphotogenic moment shared between President Obama and a baby that was retweeted more than 100 times.

As the superimposed text explains, the individual share of the U.S.’s $17.6 trillion national debt is slightly less than $55,300, and both figures are expected to grow. The 2014 annual deficit is expected to clock in at $492 billion.
The good news: $492 billion is much smaller than the record $1.4 trillion deficit in 2009, a jaw-dropping amount that was the perfect storm of shrinking tax revenues combined with expensive wars and bailouts. In fact, a $492 billion deficit would be below average as a share of the economy than deficits over the period 1974 to 2013.

Now the bad news: The Congressional Budget Office projects that deficits will increase again starting in 2015, reaching the ominous $1 trillion-per-year mark in 2022 — and then staying there. The CBO blames an “aging population, rising health care costs, an expansion of federal subsidies for health insurance and growing interest payments on federal debt” for the rise.

Rep. Kristi Noem (Photo: AP)Even worse news: As others have noted, the $17 trillion figure does not adequately capture the extent of our penury. The government’s unfunded liabilities — that is, the amount it has promised to pay in the future, but will not have the revenue to cover — is in the tens of trillions.
And, as the Hudson Institute’s Chris DeMuth points out, most of this debt will be accrued to fund entitlement program transfers, not public-good projects, which means it will have a low economic return on investment.

In other words, things are grim. With apologies to the baby, we laugh so we don’t cry.

White House To Ignore Court Ruling, Keep Handing Out Obamacare Subsidies


Sarah Hurtubise

The Obama administration will continue handing out Obamacare subsidies to federal exchange customers despite a federal court’s ruling Tuesday that the subsidies are illegal.

A D.C. Court of Appeals panel ruled Tuesday morning that customers in the 36 states that didn’t establish their own exchange and use instead cannot be given premium tax credits, according to the text of the Affordable Care Act itself. (RELATED: Federal Court Takes Down Obamacare: Subsidies In Federal Exchange Are Illegal)

But the White House said in response that it will continue handing out the billions of taxpayer dollars in subsidies. White House press secretary Josh Earnest said that while the case continues to be battled out in the courts, the administration will continue to dole out billions in tax credits to federally-run exchange customers.

“It’s important for people all across the country to understand that this ruling does not have any practical impact on their ability to continue to receive tax credits right now,” Earnest said in a press briefing Tuesday.

A three-judge panel issued the ruling Tuesday, concluding 2-1 that the federal subsidies are illegal. The Department of Justice is seeking an en banc ruling from the appeals court, which would require all judges in the court to rule on the case. Eleven judges on the court would hear the case: seven Democrats and four Republicans.

That decision will likely also be appealed to the Supreme Court.

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Court rules subsidies illegal for Obamacare…



WASHINGTON — Two federal appeals court panels issued conflicting rulings Tuesday on whether the government could subsidize health insurance premiums for people in three dozen states that use the federal insurance exchange. The decisions are the latest in a series of legal challenges to central components of President Obama’s health care law.

The United States Court of Appeals for the Fourth Circuit, in Richmond, upheld the subsidies, saying that a rule issued by the Internal Revenue Service was “a permissible exercise of the agency’s discretion.”

The ruling came within hours of a 2-to-1 ruling by a panel of the United States Court of Appeals for the District of Columbia Circuit, which said that the government could not subsidize insurance for people in states that use the federal exchange.

That decision could cut potentially off financial assistance for more than 4.5 million people who were found eligible for subsidized insurance in the federal exchange, or marketplace.

The law “does not authorize the Internal Revenue Service to provide tax credits for insurance purchased on federal exchanges,” said the ruling, by a three-judge panel in Washington. The law, it said, “plainly makes subsidies available only on exchanges established by states.”

Under this ruling, many people could see their share of premiums increase sharply, making insurance unaffordable for them.

The courts’ decisions are the not the last word, however, as other courts are weighing the same issue. And the Washington panel’s ruling could be reviewed by the full appeals court here.

The White House rejected the ruling of the court here and anticipated that the Justice Department will ask that the entire appeals court to review it. Mr. Obama’s aides noted that two district courts have thrown out similar lawsuits and therefore argued that judicial opinions have been mixed at worst. Moreover, they said the ruling Tuesday seemed to fly in the face of common sense.

“You don’t need a fancy legal degree to understand that Congress intended for every eligible American to have access to tax credits that would lower their health care costs, regardless of whether it was state officials or federal officials who were running the marketplace,” said Josh Earnest, the White House press secretary. “I think that is a pretty clear intent of the congressional law.”

Reacting to the ruling in Washington, a Justice Department spokeswoman, Emily Pierce, said: “We believe that this decision is incorrect, inconsistent with congressional intent, different from previous rulings and at odds with the goal of the law: to make health care affordable no matter where people live. The government will therefore immediately seek further review of the court’s decision.”

“In the meantime,” Ms. Pierce said, “to be clear, people getting premium tax credits should know that nothing has changed. Tax credits remain available.”

Continue reading the main story

The majority opinion in the case filed here, Halbig v. Burwell, was written by Judge Thomas B. Griffith, with a concurring opinion by Judge A. Raymond Randolph, a senior circuit judge.

Another member of that appeals court panel, Judge Harry T. Edwards, also a senior circuit judge, filed a dissenting opinion in which he described the lawsuit as an “attempt to gut” the health care law. The majority opinion, he said, “defies the will of Congress.”

Judge Edwards said that the Obama administration’s reading of the law, considered in “the broader context of the statute as a whole,” was “permissible and reasonable, and, therefore, entitled to deference.”

A similar approach was sounded later by the Fourth Circuit panel, which said, “We find that the applicable statutory language is ambiguous and subject to multiple interpretations.” The court said it would therefore give deference to the reading of the law by the Internal Revenue Service, which issued the rule allowing payment of subsidies for people in all states, regardless of whether the state had a federal or state exchange.

The decision by the appeals court here is important because the federal exchange serves states with about two-thirds of the nation’s population. In federal and state exchanges, people may qualify for subsidies if they have incomes of up to $45,960 for individuals and up to $94,200 for a family of four.

If it stands, the ruling by the District of Columbia court could undercut enforcement of the requirement for most Americans to have insurance. Without subsidies, many more consumers would go without insurance and could be exempted from the “individual mandate” because insurance would be unaffordable for them.

The ruling also could undermine the requirement for larger employers to offer health coverage to their employees. That requirement is enforced through penalties imposed on employers if any of their employees receive subsidies to buy insurance on an exchange.

The case is one of many legal challenges to the Affordable Care Act in the last few years. The Supreme Court upheld the law in 2012, but said the expansion of Medicaid was an option for states, not a requirement, and about half the states have declined to expand eligibility.

The administration suffered a defeat in a recent struggle over access to contraceptives. The Supreme Court ruled on June 30 that family-owned for-profit corporations like Hobby Lobby Stores were not required to provide coverage of birth control to their employees if the companies objected on religious grounds.

The health care law authorized subsidies specifically for insurance bought “through an exchange established by the state.”

Obama administration officials said that an exchange established by the federal government was, in effect, established by a state because the secretary of health and human services was standing “in the shoes” of states when she established exchanges.

When the health care law was adopted in 2010, Mr. Obama and Congressional Democrats assumed that states would set up their own exchanges. But many Republican governors and state legislators balked, and opposition to the law became a rallying cry for the party.

The lawsuit in Washington was filed by several people, supported by conservative and libertarian organizations, in states that use the federal exchange: Tennessee, Texas, Virginia and West Virginia. They objected to being required to buy insurance, even with subsidies to help defray the cost.

One of the plaintiffs, David Klemencic, who has a retail carpet store in Ellenboro, W.Va., said: “If I have to start paying out for health insurance, it will put me out of business. As Americans, we should be able to make our own decisions in matters like this.”

Similar lawsuits challenging subsidies under the Affordable Care Act are pending in other courts, which could reach different conclusions. In February, a federal district judge in Richmond, Va., upheld subsidies in the federal exchange. While plaintiffs’ interpretation of the law has “a certain common sense appeal,” the judge said, “there is no evidence in the legislative record” that Congress intended to make tax subsidies conditional on a state’s decision to create an exchange.

Stuart F. Delery, an assistant attorney general, told the appeals court here in March that Congress had intended for subsidies to be available nationwide to low- and moderate-income people, regardless of whether they obtained insurance on a federal or state exchange.

Subsidies, in the form of tax credits, are a crucial element of the Affordable Care Act. Without them, insurance would be unaffordable to millions of Americans. The Congressional Budget Office estimates that subsidies this year will average $4,400 for each person who receives a subsidy.

The plaintiffs said that Congress had confined the subsidies to state exchanges for a reason: It wanted to provide an incentive for states to establish and operate exchanges, rather than leaving the task to the federal government.

Obama administration officials said that argument was absurd. The overriding purpose of the Affordable Care Act, they said, was to ensure access to health care for nearly all Americans, wherever they live.

Of the eight million people who selected private health plans from October through mid-April, 5.4 million obtained coverage through the federal exchange, and most of them qualified for subsidies that reduce their premiums.



“… I wouldn’t bet the family farm on this coming out in a way that preserves Obamacare,” he says

By Joel Gehrke

President Obama’s old Harvard Law professor, Laurence Tribe, said that he “wouldn’t bet the family farm” on Obamacare’s surviving the legal challenges to an IRS rule about who is eligible for subsidies that are currently working their way through the federal courts.

“I don’t have a crystal ball,” Tribe told the Fiscal Times. “But I wouldn’t bet the family farm on this coming out in a way that preserves Obamacare.”

The law’s latest legal problem is that, as written, people who enroll in Obamacare through the federal exchange aren’t eligible for subsidies. The text of the law only provides subsidies for people enrolled through “an Exchange established by the State,” according to the text of the Affordable Care Act. Only 16 states decided to establish the exchanges.

The IRS issued a regulation expanding the pool of enrollees who qualify for the subsidies. Opponents of the law, such as the Cato Institute’s Michael Cannon and Jonathan Adler, argue that the IRS does not have the authority to make that change. (Halbig v. Burwell, one of the lawsuits making this argument, is currently pending before the D.C. Circuit Court; the loser will likely appeal the decision to the Supreme Court.)

“There are specific rules about when and how the IRS can deviate from the plain language of a statute,” Cannon explained to National Review Online, arguing that the subsidies regulation fails to comply with those rules.

The IRS can deviate from “absurd” laws, in theory, but the subsidies language is not absurd. “It might be stupid, but that’s not the test for absurdity,” Cannon says. Similarly, the IRS can deviate in the case of scrivener’s errors — typos, basically — but this is not a typo, Cannon says, because the language was written into repeated drafts of the law.

“They not only keep that language in there, but they even inserted it, this same phrase again, right before passage while the bill was in [Senate Majority Leader] Harry Reid’s office,” Cannon says. “So, it’s not a scrivener’s error, either.”

Finally, the IRS could fill in ambiguous gaps in a law. The problem for the IRS, though, is that the subsidies language is not ambiguous. Even Tribe acknowledged that the language is clear, according to the Fiscal Times.

“Yet in drafting the law, Tribe said the administration ‘assumed that state exchanges would be the norm and federal exchanges would be a marginal, fallback position’ — though it didn’t work out that way for a plethora of legal, administrative and political reasons,” the Fiscal Times writes.

Tribe suggested that the case will, like the individual mandate challenge before it, hinge on Chief Justice John Roberts’s decision. “He would be asking himself the hard question: ‘Is it so clear under existing law that it has to be construed in this literal and somewhat bizarre way . . . that subsidies or tax credits cannot be provided on the federal exchanges, or is it sufficiently ambiguous that it gives me the necessary legal wiggle room’ [to side with the administration once again?]” Tribe said.

Forbes contributor Jeffrey Dorman notes that a recent ruling in a case involving the Environmental Protection Agency could make it harder for Roberts to conclude that he has that wiggle room.

“The power of executing the laws necessarily includes both authority and responsibility to resolve some questions left open by Congress that arise during the law’s administration. But it does not include a power to revise clear statutory terms that turn out not to work in practice,” Justice Antonin Scalia wrote in an opinion that Roberts joined in full.

Cannon believes Roberts is unlikely to go through the legal gymnastics used when he upheld the individual mandate as an exercise of Congress’s taxing power, even though it was written into law as an unconstitutional penalty.

“That was a question of congressional power under the Constitution, and this is a question of IRS power under the ACA and Supreme Court precedents,” Cannon says. “The IRS has absolutely zero independent power to tax and borrow and spend. It can only do that which is delegated to it by Congress.”

And he has no patience with Tribe’s suggestion that it would be “bizarre” for Roberts to conclude that only state-based exchanges can receive subsidies.

“He’s obviously trying to coach the Supreme Court on how to rule for the government here,” Cannon counters. “He’s also either ignoring or not aware of the legislative history showing that Congress was considering all sorts of proposals that would withhold subsidies from states that didn’t establish exchanges or do other things.”

“It is clear that he has not researched the legislative history, because there is nothing bizarre about it,” Cannon says.

Top Insurance Company UnitedHealth Doing Better Than Expected Under Obamacare

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Sarah Hurtubise

UnitedHealth Group, one of the country’s largest insurance companies, announced better-than-expected profits as a result of the health-care law Thursday.

Overall, the company took a two percent hit in net earnings in the second quarter due to increased taxes from Obamacare and various growing expenses, but still beat expectations. The insurer’s first-quarter profits decreased by eight percent this year, which it attributed to the health-care law. UnitedHealth’s shares rose more than two percent Thursday morning, according to the AP.

Large insurance companies stand to benefit the most from the health-care law and UnitedHealth’s growing profits come as no surprise. The simple mandate that all Americans must carry health insurance widens the customer base of large insurance companies drastically — as do federal subsidies that prevent customers from feeling the brunt of premium costs.

UnitedHealth expanded coverage significantly through Obamacare exchanges and Medicaid programs. Another 270,000 members gained private insurance in addition to a 19 percent bump, or 730,000 new patients, in Medicaid coverage.

The company earned $1.41 billion overall in the second quarter, down slightly from $1.44 billion from the second quarter in 2013. Revenue rose by seven percent to $32.57 billion.

But a driving factor of UnitedHealth’s earnings came not from its health insurance sales but from its growing IT technology division, Optum/QSSI. Optum’s earnings jumped by 23 percent to $728 million over the past three months, the most growth this quarter of any of UnitedHealth’s divisions. Optum/QSSI recently won a lucrative government contract for the federal Obamacare website

Insurance companies lobbied heavily in favor of the health-care law (and also against some provisions which limit profits) and they stand to profit long-term. But several Republican senators are worried about the level of entanglement between the Obama administration and UnitedHealth’s Optum. (RELATED: GOP Senators Wary Of Insurer, Admin Ties In Obamacare Implementation)

Sens. Chuck Grassley and Orrin Hatch sent a letter to Obamacare chief Marilyn Tavenner requesting an explanation and documents related to potential conflicts of interest between Optum and the Obama administration. They fear the intricate connections between UnitedHealth, a top insurance company, and the agencies implementing Obamacare, which directly regulates UnitedHealth, could give the insurer a leg up over the rest of the field.

UnitedHealth also announced Thursday that it would expand its activity in Obamacare exchanges significantly in 2015 — presenting even further opportunity for any conflicts of interest to become a problem. While UnitedHealth only participated in around a dozen exchanges this year, it will begin offering products in “as many as two dozen” state exchanges next year.

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Chicago Faces $67 Million Shortfall After Obamacare’s Medicaid Expansion Busts Budget


Sarah Hurtubise

Chicago’s public health system is facing a massive $67 million shortfall after an early adoption of Obamacare’s Medicaid expansion cost much more than expected, Crain’s Chicago Business reports.

Cook County, which encompasses Chicago and its surrounding suburbs, made a deal with the Obama administration to get an early start on the health care law’s Medicaid expansion in 2012.

But the resulting program, CountyCare, is costing millions more than original projections. The prototype Medicaid expansion lost Cook County $21 million in the first six months of operation — that’s expected to balloon to $63.5 million by November 30, according to the Chicago Tribune.

CountyCare was expected to pad the city’s coffers. In 2013, state officials projected that the new system would bring in at least $28 million by November, Crain’s reported. The cost of caring for the influx of Medicaid patients has busted projections partially because the newly insured are seeking pricier medical care than expected.

While the program has already failed to meet budget projections this year, the problem is likely to get worse in 2015. Medicaid expansion patients are required to use only CountyCare medical facilities for the first year — meaning the county will end up reimbursing itself for much of its spending on CountyCare coverage.

In January, however, CountyCare patients will be allowed to access other health plans and medical providers. That could leave the expanded Medicaid program to cover patients with the most expensive health problems, along with the least ability to pay. If the public health system loses more inexpensive patients next year, the budget crunch will get even worse.

Dr. John Jay Shannon, promoted to the top position at the Cook County Health and Hospitals System just weeks ago, is charged with finding $67 million in savings from the program by November. If he’s unable to, Cook County taxpayers will have to pony up to pay for the program.

Shannon told Crain’s that the county had “unrealistic expectations” that CountyCare would be “some kind of profit center” for the public health system. But Cook County officials were far from alone in thinking the federal funding would boost.

Advocates of the Medicaid expansion nationwide regularly castigate states that have decided against expanding the welfare program. The White House recently released a report attempting to shame states for refusing $88 billion in “free” federal taxpayer funding to expand Medicaid — but Cook County’s experience suggests states may not be able to count on the programs remaining free. (RELATED: White House: Red States Have Saved Federal Taxpayers $88 Billion By Rejecting Medicaid Expansion)

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