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“CMS has assumed a passive approach to identifying and preventing fraud” in the federal health insurance marketplace, according to a Government Accountability Office (GAO) report. During undercover testing by the GAO, the federal marketplace approved subsidized coverage for 11 of 12 fictitious GAO phone or online applicants for 2014. These applicants obtained a total of about $30,000 in annual advance premium tax credits, plus eligibility for cost-sharing reductions at time of service. The fictitious enrollees maintained subsidized coverage throughout 2014, even though the GAO sent fictitious documents, or no documents, to CMS to resolve application inconsistencies. When asked about the GAO report at a House Energy and Commerce Committee hearing on the HHS budget, Secretary Burwell stated “with regard to the issue of making sure the right people are getting any taxpayer subsidy, we take it very seriously.”

This GAO report follows on the footsteps of an HHS Office of Inspector General (OIG) report which found that during the launch of the federal marketplace ( there was an absence of clear leadership that caused delays in decision making; a lack of clarity in project tasks; too much time devoted to developing policy and too little time spent on properly managing its key website development contract; a hampering of progress due to CMS’s organizational structure and culture, including poor coordination between policy and technical work; and CMS’ continued reliance on a failing path despite signs of trouble.

Enrollment and subsidy eligibility. Sections 1401 and 1402 of the Patient Protection and Affordable Care Act (ACA), respectively, provide for advance premium tax credits (APTCs) and cost-sharing reductions (CSRs) for eligible applicants for health insurance through the federal marketplace. Section 1411 sets forth the procedures the federal marketplace must undertake to determine eligibility for enrollment and, if applicable, for APTCs and CSRs. These verification steps include: (1) validating an applicant’s Social Security number, if one is provided; (2) verifying citizenship, status as a national, or lawful presence by comparison with Social Security Administration (SSA) or Department of Homeland Security records; and (3) verifying household income and family size by comparison against tax-return data from the Internal Revenue Service (IRS), as well as data on Social Security benefits from the SSA.

Data hub. To implement the process of verifying applicant information, CMS created an electronic system call the “data services hub” (data hub), which provides a single link to federal sources, such as the IRS and the SSA, to verify consumer application information. Although the data hub plays a key role in the eligibility and enrollment process, the GAO found that CMS does not track or analyze either the extent to which a responding agency delivers information responsive to a request, or whether an agency reports that information was not available. In not doing so, according to the GAO, CMS “foregoes information that could suggest potential program issues or potential vulnerabilities to fraud, as well as information that might be useful for enhancing program management.”

Application inconsistencies. The GAO also found CMS did not have an effective process for resolving inconsistencies for individual applicants in the marketplace. For example, GAO analysis of CMS data found that about 431,000 applications from the 2014 enrollment period, with about $1.7 billion in associated subsidies paid to insurers in 2014, still had unresolved inconsistencies as of April 2015. In addition, the GAO report indicated that CMS failed to resolve Social Security number inconsistencies for about 35,000 applications (with about $154 million in associated subsidies) or incarceration status inconsistencies for about 22,000 applications (with about $68 million in associated subsidies). As a result, the GAO concluded that CMS is at risk of granting eligibility to, and making subsidy payments on behalf of, individuals who are ineligible to enroll in qualified health plans. In addition, the GAO noted that accurate Social Security numbers are vital to the IRS in determining income tax compliance and reconciliation of APTCs that can lower enrollee costs.

Contracting out fraud assessment. The GAO examination found that CMS relies upon a contractor charged with document processing to report possible instances of fraud, even though the contractor is not required by CMS to have any fraud detection capabilities. The GAO concluded that until CMS performs a comprehensive fraud risk assessment of federal marketplace enrollment and eligibility, it is unlikely to know whether existing control activities are suitably designed to reduce the risk of fraud to an acceptable level.

Recommendations. The GAO recommended that the Secretary of HHS and the Acting Administrator of CMS take eight specific actions:

(1) Conduct a comprehensive feasibility study on actions that CMS can take to monitor and analyze, both quantitatively and qualitatively, the extent to which data hub queries provide requested or relevant applicant verification information.

(2) Track the value of APTC and CSR subsidies that are terminated or adjusted for failure to resolve application inconsistencies.

(3) In the case of CSR subsidies that are terminated or adjusted for failure to resolve application inconsistencies, consider whether it would be feasible to create a mechanism to recapture those costs; and for actions determined to be feasible and reasonable, create a written plan and schedule for implementing them.

(4) Identify and implement procedures to resolve Social Security number inconsistencies.

(5) Reevaluate CMS’ use of Prisoner Update Processing System (PUPS) incarceration data.

(6) Create a written plan and schedule for providing marketplace call center representatives with access to information on the current status of eligibility documents submitted to CMS’s documents processing contractor.

(7) Conduct a fraud risk assessment of the potential for fraud in the process of applying for qualified health plans through the federal marketplace.

(8) Fully document prior to implementation any significant decision on qualified health plan enrollment and eligibility matters, including policy objectives, supporting analysis, scope, and expected costs and effects.

GAO’s concern with HHS response. While HHS concurred with the GAO’s recommendations, the GAO expressed concern that HHS’ response did not elaborate on particular actions it would take. For example, while HHS told the GAO it is working to provide call center representatives with current status of eligibility documentation, it did not state how and when this will be done. Similarly, while agreeing to reevaluate the use of PUPS incarceration data, HHS said it continues to use PUPS data as a trusted data source, while also questioning its utility.

SOURCE: GAO Report, GAO-16-29, February 23, 2016.

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