Monthly Archives: July 2013

How the Obamacare “Honor System” Will Encourage Fraud

Earlier this month, the Obama Administration—in a 600-plus page regulation—announced that for 2014, Obamacare insurance subsidies will essentially operate on the “honor system.” This will create incentives for fraud, as some applicants may report an income that is actually lower than their true income in order to qualify for the taxpayer-funded subsidy.

In most cases, the IRS will not attempt to verify an individual’s income when he or she is applying for subsidies. Supporters of the law claim that the changes will not encourage fraud, because “applicants who receive [subsidies] for which they are ineligible will have to pay them back when they file their taxes.” Unfortunately, that claim isn’t entirely accurate. Some individuals will only face a maximum $2,500 in repayment, while receiving far more in benefits.

Before explaining the loophole, some background about the subsidies. Obamacare provides exchange insurance subsidies for Americans who do not have access to “affordable” employer-sponsored health coverage. The subsidies are provided on a sliding scale based on income.

Americans with incomes between 138 percent and 400 percent of the federal poverty level (FPL)—between about $31,800 and $94,200 for a family of four—qualify for premium subsidies, and applicants with incomes under 250 percent of the FPL—about $59,000 for a family of four—will also receive additional subsidies to reduce or cover cost-sharing requirements (e.g., deductibles and co-payments).

Subsidies will be based on an applicant’s self-reported income at the time of application, meaning that subsidies for 2014 will be calculated based on income reported by applicants in fall 2013. However, the income reported on applications in fall 2013 could vary significantly from income reported on 2014 tax returns, filed with the IRS in spring 2015—either because of a change in life circumstances (e.g., divorce, birth, death, change in job, etc.), or because an individual misrepresented income on his application.

If an individual receives subsidies in error, he will have to pay the subsidies back—but there are limits on the amount individuals will have to repay. Those who should never have received an income-based subsidy—because their income exceeds 400 percent FPL—will have to repay the full amount of the subsidy they received. However, those with incomes under 400 percent FPL—who qualify for some level of subsidy, just not as much as they actually received—will only have to pay back up to $2,500 of the difference between the subsidies they actually received and the subsidies they should have received.

It’s this loophole that will encourage fraud—because individuals can gain more in benefits than they will have to repay, by understating their income. Take an example of an honest family of four—two adults, both aged 40, and two children—with income of $90,000 (just under 400 percent FPL). According to the Kaiser Family Foundation’s subsidy calculator, this family would receive a subsidy of $2,997 to help them pay for insurance. That insurance would carry with it maximum out-of-pocket expenses of $12,700, meaning that the family’s health care costs could not exceed $12,700 for the year.

Compare that scenario to what happens if the same family were to be dishonest and report income of only $35,000—or just above 138 percent FPL—on their application. According to the Kaiser calculator, the family would receive a subsidy of $10,175 to pay for insurance. That’s $7,178 in taxpayer-funded insurance subsidies over the $2,997 they should have received if they were honest.

In addition, the family would also qualify for reduced cost-sharing limits within their insurance plan—their out-of-pocket expenses could total no more than $4,500 per year, because additional federal subsidies would reduce their cost-sharing limits. That’s an additional $8,200 in cost-sharing assistance from federal taxpayers ($12,700 minus $4,500), depending on their annual medical expenses. Yet under current law, the family would only have to repay a maximum of $2,500 of these improperly obtained premium and cost-sharing subsidies—meaning they would benefit by thousands of dollars, and potentially more than $10,000, by mis-stating their income on their exchange application.

To sum up: Individuals with incomes below 400 percent FPL will not have to pay back the entire amount of any subsidies received improperly. In many of these cases, individuals will receive more in benefits than they will have to repay the federal government. Therefore, as long as they will qualify for some subsidy, dishonest individuals have incentive to fudge their income so they receive the maximum subsidy—in order to maximize the benefits they receive.

Supporters of the law claim this scenario will not happen, due to the penalties associated with misrepresenting information on application forms and tax documents. But with government auditors noting the exchanges have missed critical deadlines, and Obamacare anti-fraud investigations being cancelled, will the federal government really have the resources necessary to enforce the law, much less ensure taxpayer funds are not being abused?

These warped incentives, combined with massive bureaucracy where the right hand doesn’t know what the left hand is doing, are simply more reasons why Congress should refuse to spend a single dime funding Obamacare.

UPDATE: Americans in states that choose to expand Medicaid with incomes under 138 percent of poverty, and Americans in states that do not choose to expand Medicaid with incomes under 100 percent of poverty, will qualify for premium subsidies.

This post was originally published at the Daily Signal.

The Case for Medicare Reform

The panel meets in secret, is controlled by special interests, and helps determine the allocation of nearly $100 billion in federal health care spending.

Is it some clandestine panel created by Obamacare? Hardly. It’s a panel controlled by the American Medical Association (AMA)—and, as The Washington Post reported in a front-page article yesterday, it has been micro-managing the way Medicare pays physicians for nearly a quarter-century.

The panel is just one part of the complex bureaucratic machinery that sets Medicare physician payment enacted by Congress in 1989. Instead of payment set by the free market forces of supply and demand, the panel assigns “value” to different medical procedures. So, in theory, a doctor performing an hour-long surgery should be paid four times as much as a physician undertaking a 15-minute procedure.

In practice, however, the process is far from straightforward. As the Post article demonstrates, the panel operates with virtually no public transparency, little government oversight, and a structural bias toward specialty physicians over primary care procedures. Curiously, in 1989 one of the arguments advanced for this payment system is that it would rectify the bias against primary care doctors.

Worse than the inaccuracies in the current payment system is the premise underlying it: That the Medicare bureaucracy and its group of “experts” can determine the “right” price of nearly every service performed by physicians nationwide.

Later this afternoon, the House Energy and Commerce Committee will begin its markup of Medicare physician payment legislation. While the legislation would revamp the process for setting Medicare reimbursements, as a Heritage Backgrounder released last week demonstrates, it does not represent fundamental reform of the Medicare program. Instead, many of the same medical specialty societies that have abused the current rate-setting process would receive new powers to control patient care—by setting guidelines that physicians must follow and cutting doctors’ pay if they do not.

True reform of the Medicare program would use a premium support system and market forces to unleash competition that will drive down health costs. Getting the federal government out of the price-control business would allow innovative reimbursement solutions to take root.

As usual, Ronald Reagan said it best:

This is the issue:… whether we believe in our capacity for self-government or whether we abandon the American Revolution and confess that a little intellectual elite in a far-distant capital can plan our lives for us better than we can plan them ourselves.

When revamping Medicare physician payment, Congress has the opportunity to take power away from that “little intellectual elite” and should not hesitate to do so. And, rather than attempting to empower other bureaucratic entities to micromanage the health system, it should return that power back to the place where it belongs—with the people themselves.

This post was originally published at the Daily Signal.

Morning Bell: Obamacare, Simplified

With open enrollment in Obamacare’s exchanges set to start in fewer than three months, the law’s supporters are attempting to change the subject from Obamacare’s many delays and glitches. Instead, they’re mounting a campaign to sell the unpopular measure to the public.

President Obama yesterday gave a speech on Obamacare, trying to justify the fact that premiums continue to rise, violating his 2008 campaign promise to lower them by $2,500 per family per year. The Kaiser Family Foundation even released a video that attempts to simplify and explain the 2,700-page measure.

But there’s another helpful chart that shows how Obamacare will work, and it’s taken from an official report released by government auditors. Click on the image below to see how the Treasury’s inspector general for tax administration explained the Obamacare enrollment process, in testimony before the House Oversight Committee on Wednesday:


The process for determining subsidy eligibility could require 21 different steps, involving at least five separate entities—the Social Security Administration, the Department of Homeland Security, the Department of Health and Human Services, the Internal Revenue Service, and state exchanges—and utilizing a process called the Income and Family Size Verification Project.

Given this bureaucratic nightmare, it’s little wonder that another report from government auditors released last month said that “critical” deadlines to create the Obamacare exchanges had been missed. Nor should any be surprised that yesterday, Treasury’s inspector general for tax administration testified it “is concerned that the potential for refund fraud and related schemes could increase” due to Obamacare.

Yet the Obama Administration believes spending more money will solve the problem. Just for the IRS implementation of Obamacare, the Administration requested $439.6 million for nearly 2,000 bureaucrats.

Obama yesterday attempted to portray Obamacare as defending Americans from insurance companies. But who will defend the American people from Obamacare? The law’s confusing maze of programs, regulations, and processes brings to mind Ronald Reagan’s famous maxim that “the nine most terrifying words in the English language are ‘I’m from the government, and I’m here to help.’”

If a picture is normally worth a thousand words, the Obamacare chart above should be worth trillions. Because Congress—seeing that Obamacare is not just too big to fail, but too big to succeed—should refuse to spend a single dime implementing this behemoth of a health care law.

This post was originally published at the Daily Signal.

Rebutting President Obama on Costs and Premiums

President Obama just finished speaking about Obamacare a few minutes ago. Several of his claims merit specific responses:

  • The President claimed that Obamacare was serving as a “check on rising costs.” But what he didn’t say is that Obamacare is actually reducing costs—because it’s not. The non-partisan Medicare actuary concluded that Obamacare would raise national health spending by hundreds of billions of dollars.
  • The President claimed that the 85 percent of individuals with employer-provided health insurance are seeing “better benefits.” But there’s a catch—nothing in life is free. For instance, Obamacare’s “free” preventive benefits in most cases will actually raise costs and premiums. And given that then-Senator Obama promised to lower premiums by $2,500 per family when selling his health plan in 2008, it’s another admission of how the law has fallen short.
  • The President claimed that those buying health insurance in the individual market would see more choice lower premiums due to Obamacare. But that’s not what the Congressional Budget Office said: The non-partisan agency concluded that individuals would have fewer choices and would be forced to buy more expensive insurance, because Obamacare’s benefit mandates would drive up premiums:

Average premiums would be 27 percent to 30 percent higher because a greater amount of coverage would be obtained. In particular, the average insurance policy in this market would cover a substantially larger share of enrollees’ costs for health care (on average) and a slightly wider range of benefits. Those expansions would reflect both the minimum level of coverage (and related requirements) specified in the proposal and people’s decisions to purchase more extensive coverage in response to the structure of subsidies.

The President claimed that policymakers should not “refight old battles”—and he’s right. Not even rebate checks given to a few million policyholders can hide Obamacare’s failure to meet his pledge to lower premiums by $2,500 per family. He should finally admit that the law has failed to achieve his campaign promises. And Congress should use that failed promise as justification to refuse to spend a single dime on Obamacare.

This post was originally published at the Daily Signal.

The Obama Administration’s Fuzzy Premium Math

President Obama is scheduled to make an address talking about Obamacare this morning. He’s expected to claim that Obamacare is working to lower premiums. There’s only one problem with that claim: His math doesn’t add up.

Let’s look at the facts. In 2008, then-Senator Obama promised premiums would go down under his plan by $2,500 per family per year. But the non-partisan Congressional Budget Office estimated in 2009 that Obamacare would raise premiums on the individual health insurance market by $2,100 per family per year by 2016.

Now, according to press reports, the Administration will release a report today with claims of lower premiums:

Costs for a middle-of-the-road insurance policy average roughly $321 per month across the 11 states that have released their rate filings for next year, administration officials said — compared with initial estimates of $392 per month.

There’s one big problem with that claim: Premiums won’t actually go down—the increases will just be lower than expected.  If premiums are $71 per month ($392 minus $321), or $852 per year, lower than CBO first estimated, that still leaves them nearly $1,250 higher than they would have been without Obamacare.  Remember: CBO said individual health insurance premiums would go up by $2,100 per family.  Even if premiums are going up by less than expected, they’re still going up—in violation of Obama’s 2008 campaign promise.

There are other problems with the Administration’s claims.  As The Hill notes, the claims are based on an apples-to-oranges comparison flattering to Obamacare:

The administration is comparing the cheapest policy in the middle tier of benefits to estimates for the second-cheapest policy — not quite applies-to-oranges, and also not a direct comparison.

Additionally, next year’s premium rates themselves are based on the assumption that enough young and healthy individuals will enroll in Exchanges to offset the cost of older, sick enrollees.  If Exchanges get stuck with only individuals whose health costs are greater-than-expected—either because only sick individuals enroll, or because employers struggling with high health costs dump their workers into the exchanges—premium costs could explode in future years. That’s exactly what happened with Obamacare’s pre-existing condition insurance plan—enrollees’ health costs were greater than expected, such that the program had to take drastic measures to avoid depleting its $5 billion allotment early.

The bottom line: Then-Senator Obama promised a $2,500 premium decrease.  Nothing released today shows that Obamacare is within a country mile of delivering on that promise.  And the fact that Obamacare has failed to deliver on its central promise is yet another reason why Congress should refuse to spend a single dime on this law.

This post was originally published at the Daily Signal.

Obamacare Exchange Contractor Target of Major Fraud Investigation

Last week, The New York Times reported that the Obama Administration over the Independence Day holiday quietly awarded “a contract worth as much as $1.2 billion” to Serco, a British company, to help develop the federal insurance exchange. Now comes word from London that Serco is one of two companies under investigation by British authorities for overbilling government contracts.

Britain’s Lord Chancellor, Chris Grayling, made a statement in Parliament on Thursday about a “wholly indefensible and unacceptable state of affairs” and indicated that the over-charges may have begun nearly 15 years ago:

The audit team is at present confirming its calculations, but the current estimate is that the sums involved are significant and run into the low tens of millions of pounds in total, for both companies, since the contracts commenced in 2005. The audit shows that the overcharging began at least as far back as the commencement of the current electronic monitoring contracts in 2005. It might even date back as far as the previous contracts let in 1999.

Even as the integrity of Serco’s contracting work has come into question in Britain, the Obama Administration could pay Serco billions to verify the integrity of individuals’ exchange applications. As the Times reported:

Serco will help the Obama administration and states determine who is eligible for insurance subsidies, in the form of tax credits, and who might qualify for Medicaid….Serco will also help the administration decide who is entitled to exemptions from the tax penalties that can be imposed on people who go without health insurance starting next year.

This billion-dollar contract represents a glaring contradiction in terms—a company under investigation for inaccurate, and potentially fraudulent, bills in Britain being asked to verify the accuracy of Americans’ applications for federal exchange subsidies. Particularly given that the Administration also announced it will rely on the “honor system” for individuals to self-report income to the exchanges next year, this development raises even more concerns about the potential for rampant fraud in Obamacare programs.

More broadly, the events in London also raise questions about why federal taxpayers should be asked to give more than $1 billion to a contractor at the center of a major investigation. Of course, Congress can—and should—put a stop to these machinations by refusing to spend a single dime on Obamacare.

This post was originally published at the Daily Signal.

Roll Out the Barrels? Obamacare Funds to Sponsor Bourbon Festivals

One day after The Washington Post reported that federal taxpayer dollars could be used to promote Obamacare through porta-potties, the same outlet posted this e-mail from a Kentucky state official on how the Commonwealth plans to use federal funds to promote Obamacare:

I briefly scanned a schedule of upcoming mobile tour events and below few [sic] that are attended by a large number of young people: regional sporting events, such as the Lexington Legends and Louisville Bats games; the Goettafest and Riverfest in Newport and Covington; the Kentucky Bourbon Festival in Bardstown, Ky.; the Bourbon Chase; Oktoberfest in Newport; the Bourbon and Blues Festival in Owensboro; a couple of half marathons in various locations; the Iron Man competition, etc. We also expect that Navigators will be doing outreach on college campuses.

In other words, Kentucky plans a beer-and-bourbon tour to try to attract young people to enroll in Obamacare. (Maybe that’s what the porta-potties are for.)

The ironies abound in this announcement. Last year, the New York Post reported that New York City Mayor Michael Bloomberg proposed using community transformation grant funds from Obamacare to “reduc[e] alcohol retail outlet density and illegal alcohol.” So as Kentucky is using Obamacare funds to promote alcohol consumption, New York City wants to use Obamacare funds to discourage it. Apparently, the left hand doesn’t know what the far-left hand is doing.

Second, alcohol abuse costs taxpayers billions of dollars every year. A 2011 Centers for Disease Control study found that alcohol abuse cost federal, state, and local taxpayers a total of $94.2 billion each year. To the extent that these Obamacare promotional activities encourage alcohol abuse, they will inevitably impose new burdens on taxpayers—and raise overall health costs, contradicting the law’s stated purpose.

Just as important, these types of theatrical “marketing” activities represent a misuse of taxpayer dollars at a time of record debt and deficits. Congress should tell the Administration to stop handing out Obamacare grants like drunken sailors and refuse to spend a single dime funding Obamacare.

This post was originally published at the Daily Signal.

Flush with Federal Cash, Obamacare Supporters Spending Money on…Porta-Potties

Even among the law’s supporters, Obamacare is in the toilet. Quite literally.

As The Washington Post reports, states implementing Obamacare’s exchanges are considering all kinds of methods to promote Obamacare. Reporter Sarah Kliff spoke with Michael Marchand, the head of Washington State’s exchange:

Marchand has been thinking up all sorts of ways to make sure young people hear about the new health program. Perhaps in music-heavy Washington state, it’s no surprise that his thoughts have gravitated toward outreach at concerts and music festivals.

“We’ve talked about everything we could use, even whether we could do some branding on porta-potties,” he said. “I want to sponsor charging stations, too. Talk about a captive audience. They’re standing there, charging their iPhones.”

Kliff reports on other states’ plans to “educate” their citizens about Obamacare, all using federal dollars provided through exchange grants. For instance, “Oregon may reel in hipsters with branded coffee cups for their lattes.” And Connecticut’s exchange “plans to head to the beach this summer” to promote Obamacare:

Officials will hand out sunscreen customized with a “get covered” slogan and hire an airplane to fly over beaches with a banner that advertises the new agency.

No word yet on whether Senator Max Baucus (D-MT) has suggested state exchanges partner with Amtrak, given his recent comments about the state of Obamacare implementation.

Jokes aside, the gusher of federal spending on exchange grants and related promotional activities demonstrates the problem with Obamacare. At a time when our nation’s debt is approaching $17 trillion, using taxpayer funds to buy latte cups, sunscreen, and portable toilets represents a massive amount of waste. It’s yet another reason why Congress should act to defund Obamacare and refuse to spend a single dime on such frivolous expenditures.

This post was originally published at the Daily Signal.

Obamacare: What Conservatives Should Do Next

Given last week’s devastating announcement that the Administration cannot implement Obamacare’s employer mandate next year without costing jobs, many conservatives have pondered the best course of action for Congress to take in response.  The strategic options are many, but the choice should be clear: Congress should refuse to spend a single dime implementing this law.

For instance, some have called for repealing or delaying the individual mandate—because struggling families should get the same break big businesses received when the Administration delayed the employer mandate last week.  Others have called for delaying the law for a year, or for defunding IRS efforts to implement Obamacare.

Repealing only some portions of the statute—for instance, the individual mandate, or IRS enforcement—will allow other portions more fully to take root.  And without language fully defunding the law, delaying portions of Obamacare will only give the Administration more time to try and “fix” the technical glitches hampering creation of Exchanges.  That’s why the best “delay”—and the only effective one—is a full defunding of the statute, one that forces all federal bureaucrats to put down their pens and stop crushing the American economy with Obamacare mandates and regulations.

Only a full, complete, and total defunding of Obamacare accomplishes all of these goals.  Conservatives should keep their eyes on the prize and focus on the ultimate objective: Ensuring Congress does not spend a single dime on Obamacare.

This post was originally published at The Forge.

Morning Bell: Obamacare’s Dirty Dozen Implementation Failures

Last week, the Obama Administration attempted to spin its announcement of a one-year delay in Obamacare’s employer mandate as an effort to implement the law “in a careful, thoughtful manner.” Don’t be fooled. Even Democrats have admitted the law has turned into a massive “train wreck,” with delays, glitches, and problems aplenty. Here are a dozen more Obamacare implementation failures.


One Democrat famously called this new long-term care entitlement “a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of”—and so it proved. In the fall of 2011, the Department of Health and Human Services (HHS) admitted CLASS could not be implemented in a fiscally sound manner—and Congress eventually repealed the program outright.


Most states resisted Obamacare’s call to create insurance exchanges, choosing to let Washington create a federally run exchange instead. However, a Government Accountability Office report released last month noted that “critical” activities to create a federal exchange have not been completed, and the missed deadlines “suggest a potential for challenges going forward.”


Last year, the Administration announced a partial delay for Obamacare’s anti-conscience mandate. However, many employers have filed legal actions against the mandate, which forces them to fund products they find morally objectionable or pay massive fines.

4. Small business plan choice: DELAYED

The Administration announced in April that workers will not be able to choose plans from different health insurers in the small business exchanges next year—a delay that liberal blogger Joe Klein called “a really bad sign” of “Obamacare incompetence.”


drafting error in Obamacare has actually led to less access to care for children with pre-existing conditions. A 2011 report found that in 17 states, insurers are no longer selling child-only health insurance plans, because they fear that individuals will apply for coverage only after being diagnosed with a costly illness.

6. Basic health plan: DELAYED

This government-run plan for states, created as part of Obamacare, has also been delayed, prompting one Democrat to criticize the Administration for failing to “live up” to the law and implement it as written.


This program for individuals with pre-existing conditions faced higher costs and lower enrollment than advertised. Though it was originally projected to cover up to 700,000 individuals, only about 110,000 have enrolled—yet the Administration had to halt new enrollment and take other radical measures to prevent the $5 billion program from running out of money.

8. Early retiree reinsurance: BROKE

The $5 billion in funding for this program was intended to last until 2014—but the program’s money ran out in 2011, two years ahead of schedule.


After the law passed, HHS discovered that some of its new mandates would raise costs so much that employers would drop coverage rather than face skyrocketing premiums. Instead, the Administration announced a series of temporary waivers—and more than half the recipients of those waivers were members of union health insurance plans.

10. Co-ops: DEFUNDED

Congress blocked additional funding to this Obamacare program in January, and with good reason: In one case, a new health insurance co-op was called “fatally flawed” by Vermont’s state insurance commissioner.

11. “Employee free choice”: REPEALED

This provision, which would have allowed certain workers to use contributions from their employers to buy exchange health plans, was repealed in April 2011, as businesses considered it too complex and unworkable.

12. Medicaid expansion: REJECTED BY MANY STATES

Last year, the Supreme Court made Obamacare’s Medicaid expansion optional for states, ruling that Obamacare as written engaged in “economic dragooning” that puts “a gun to the head of states.” Many states are resisting Obamacare’s call to expand Medicaid, knowing that expansion will saddle them with additional, unsustainable costs.

As these examples demonstrate, it’s not just the employer mandate that’s flawed—it’s the entire law. Recognizing these myriad, massive failures, Congress should hold the line and refuse to spend a single dime on Obamacare implementation.

This post was originally published at the Daily Signal.