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Obamacare’s Invitation to Fraud



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When the Obama administration announced last Tuesday that they would be delaying Obamacare’s employer mandate and its associated reporting requirements by a year, many observers (myself included) noted that this could create problems for verifying eligibility for subsidies in the Obamacare exchanges.

Many if not all of the state exchanges, and presumably also the federally-run exchanges, were planning to use the required employer reports to facilitate the eligibility reconciliation that you have to do at tax filing time when people receive advanceable tax credits like those set to be offered in the exchanges. If employers weren’t required to provide reports for 2014, the process of confirming eligibility (that is, confirming that people receiving subsidies had in fact not been offered affordable insurance coverage at work) would become more difficult to pull off, since it’s not really clear what other data sources the exchanges would have, and the exchange subsidy system would therefore become that much more difficult to manage. On Thursday, Reuters quoted the spokeswoman for the largest and most important of the prospective state-run exchange systems echoing this concern:

California, said spokeswoman Anne Gonzales, “was planning to tap into information from large employers to verify employee health coverage. The exchange is currently evaluating how the delay in implementation of the large employer mandate will impact enrollment and verification.”

Other states clearly shared this worry about how they were supposed to confirm eligibility for subsidies. But on Friday, the Obama administration answered their question with what is becoming the familiar refrain of Obamacare implementation: “never mind.” Buried in a massive 600-page rule released without fanfare the day after July 4, the administration announced that it would effectively delay the requirement to verify eligibility in the state exchanges.

In 2014, applicants can more or less be deemed eligible for subsidies in the state-run exchanges if they say they are eligible. If it has no external sources of information regarding what insurance employers offer, the rule states, “the exchange may accept the applicant’s attestation regarding enrollment in an eligible employer-sponsored plan and eligibility for qualifying coverage in an employer-sponsored plan for the benefit year for which coverage is requested without further verification.” In fact, the exchanges are not only released from the obligation to verify whether applicants are eligible for employer coverage, they are also released from the obligation to confirm applicants’ statements regarding their household incomes before providing them with what is supposed to be an income-based benefit.

As with the employer-mandate delay (to which it is the natural follow-up), this decision appears to have come as a surprise to the people most immediately affected by it—in this case the administrators of the state exchanges. The statement quoted above from the spokeswoman of the California exchange suggests the administrators of that exchange did not know about this new rule the day before it was released. It must come as both a great relief to them and something of a slap in the face, since they and their colleagues in other states have after all spent huge amounts of time and money trying to prepare the technological architecture for verification requirements from which they have now been released. After this eventful week, they must wonder what other “delays” are coming in low-key announcements late on Friday afternoons.

And also as with the employer-mandate delay, the suspension of verification requirements was justified in the administration’s announcement by pointing to the administration’s inability to pull off what the law requires. Doing so, the rule states, “would involve a large amount of systems development on both the state and federal side, which cannot occur in time for October 1, 2013.” I suspect we’ll be hearing more of that in the coming weeks and months.

But there is also more going on here. The administration’s contortions in implementing Obamacare have to be understood in light of the fact that only the administration itself really knows how implementation is going. No one else has anything approaching a complete picture, and particularly not regarding the development of the exchanges. The status of the federally-run exchanges, even more than those to be run by the states, remains simply a mystery. The administration has shared scant little information with the public, and even an investigation by the Government Accountability Office (an arm of the Congress) concluded last month that the likelihood that the exchanges will be ready to launch in October as required by law “cannot yet be determined.” The various delays and rule changes announced by the administration are responses to problems they are finding in the process of implementation, and the shape of those responses is among the only clues we have to the shape of the problems they see.

The delay of the employer mandate announced on Tuesday and the delay of the verification requirements for eligibility announced on Friday both suggest the same two kinds of problems: logistical difficulties with getting complex systems into place, and the fear of ending up with too few people in the exchanges.

The first of these is straightforward enough, and has tended to be the public reason offered for these delays. But the second is clearly also a major concern for champions of the law. If not enough people sign up for the exchanges, the system could end up with an insufficient and unsustainable insurance pool—too few healthy people to balance the sick ones and fund the cost of their care. The premium shock—that is, the fact that relatively healthy people will face much higher insurance premiums under the new system than they face today—that looks likely to be prevalent in the exchanges in almost every state could well drive younger and healthier people away, the penalty for remaining uninsured (the so-called “individual mandate”) may not be high enough at first to keep them in the system, and many people may also be inclined to wait and see how the exchanges shape up before they join.

This concern is very high on the agenda of those implementing the law. It is why they are investing in a huge PR effort to drive enrollment. It is surely part of the reason for delaying the employer mandate—allowing some large employers to dump their workers into the exchanges without a penalty. And it seems very likely also to be a key factor behind the decision to allow people access to the exchange subsidies without proving they actually qualify for them.

Opening the door wide open to fraud could well increase the number of people in the exchanges, but it will also make that number far less meaningful—casting a shadow over whatever is achieved by the enrollment effort set to launch in the fall. It will also, needless to say, increase the cost of the exchange subsidies. The administration is clearly worried enough about enrollment to take that risk and bear that cost. It seems to be operating under the assumption that the way to secure Obamacare’s future is to get as many people as possible into the system and receiving subsidies. Maybe they’re right, and maybe they’re wrong, but they certainly seem increasingly desperate.



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