Simon Glairy is a recognized expert in insurance and Insurtech, specializing in AI-driven risk assessment. His insights are particularly crucial now, as the House Judiciary Committee subpoenas eight major health insurers—including CVS Health and Kaiser Permanente—over their fraud protection measures. This investigation follows a government report that uncovered a staggering $21 billion in unreconciled tax credits and other systemic vulnerabilities within the Affordable Care Act marketplace. In our conversation, we will explore the mechanics of this massive financial discrepancy, delving into how the system fails to verify eligibility, leading to subsidies being paid for deceased individuals and fake applicants. We will also examine the ripple effects of these improper payments on the insurance market and discuss the deep-seated data-matching failures that allow such vulnerabilities to persist.
With eight of the nation’s largest health insurers now under a congressional microscope, could you elaborate on what investigators are likely searching for in these fraud protection documents? And where does the responsibility for verifying an enrollee’s eligibility truly lie – with the insurer or the government?
The House Judiciary Committee is almost certainly looking for internal communications, policies, and procedural documents that outline how these insurers identify and report potential fraud. They want to see what systems are in place to flag suspicious applications, like one Social Security number being used for over 125 policies. While the federal marketplace is the primary gatekeeper for eligibility, insurers are the ones receiving the payments, which amount to billions. Investigators will want to know what due diligence insurers like Blue Shield of California or Centene perform and whether they have been passively accepting subsidies without questioning clear red flags. The core of the issue is accountability; when $21 billion in tax credits goes unreconciled, the committee wants to understand every link in the financial chain.
The term ‘reconciliation failure’ keeps coming up, linked to a staggering $21 billion in a single year. Can you break down what this means in simple terms and illustrate the consequences when someone who received a subsidy doesn’t file the required tax forms?
Think of it like this: when you enroll, you estimate your income for the year, and the government gives you an advance tax credit based on that guess, paying it directly to your insurer each month. At the end of the year, you’re required to file IRS Form 8962 to square up—to reconcile your estimated income with your actual income. A ‘reconciliation failure’ means the enrollee never files that form. For the taxpayer, this means they may have received thousands of dollars they weren’t entitled to, with no immediate consequence. For the system, it’s a catastrophic breakdown. The Government Accountability Office’s analysis found no evidence of this reconciliation for $21 billion in credits paid out in 2023. This effectively means there’s no verification or accountability, leaving a massive financial black hole funded by taxpayers.
As federal subsidy costs are projected to soar to $138 billion next year, how does this scale of improper payments impact the broader insurance market and the premiums paid by those who follow the rules?
The financial ripple effects are immense and destabilizing. When billions in improper payments flood the marketplace, it artificially inflates the risk pool and the overall cost structure. Insurers price their plans based on a certain set of assumptions about their enrollees’ health and subsidy levels. When those subsidies are based on fraudulent or unverified information, it distorts the entire financial model. This leads to market uncertainty, and to compensate for that risk and the administrative burden of dealing with these issues, insurers will inevitably raise premiums for everyone. So, the compliant enrollees—the people who accurately report their income and file their taxes—end up footing the bill through higher monthly costs. It’s a classic case of a few bad actors or systemic failures creating a financial burden for the many.
The GAO study uncovered some truly alarming specifics, like subsidies being paid for 58,000 deceased individuals and a single Social Security number being tied to 125 policies. From a technical standpoint, how can such fundamental data-matching failures persist in this day and age?
These examples point to a glaring and frankly inexcusable lack of basic data cross-referencing between federal agencies. In the case of the 58,000 deceased individuals receiving subsidies, it signals a failure to match marketplace enrollment data against the Social Security Administration’s death master file. This is a routine check that should be happening in near real-time, not discovered in an audit years later. The fact that $94 million was paid out shows the gap is not just theoretical. Similarly, one SSN being used 125 times suggests the system has no velocity checks or controls to flag an impossible number of concurrent policies. These aren’t sophisticated hacks; they are failures of fundamental database integrity and inter-agency communication, which is shocking given the scale of the marketplace.
Perhaps most damning was the covert test where investigators got 100% of their fake applicants approved for subsidized coverage. What does a perfect failure rate tell you about the front-end verification process, and what immediate steps could be implemented to fix it?
A 100% failure rate is a complete indictment of the front-end verification system. It reveals that the process is essentially an honor system with no meaningful, real-time checks at the moment of enrollment. Getting 18 out of 20 fake identities approved and receiving over $12,300 in monthly subsidies demonstrates that the system is designed for access above all else, with integrity as a distant afterthought. An immediate step would be to implement more robust, automated identity verification using third-party data sources before any subsidy is approved. This could involve cross-referencing data with credit bureaus, utility records, or other public databases to confirm an applicant is a real person at a real address. While we must avoid creating undue barriers for eligible people, the current system swings the pendulum too far, inviting fraud on an industrial scale.
What is your forecast for the Affordable Care Act marketplace?
Looking ahead, I foresee a period of significant regulatory turbulence for the ACA marketplace. The sheer scale of these findings—$21 billion unreconciled, 100% of fake applicants approved—is too large for Congress to ignore, regardless of politics. I expect a major push for new integrity rules that mandate stricter, real-time data verification at enrollment, likely forcing better integration between the IRS, Social Security Administration, and Health and Human Services. Insurers will face immense pressure to enhance their own fraud detection capabilities, moving beyond passive payment acceptance to actively flagging anomalies. While this will create short-term friction and could make enrollment more cumbersome, it’s a necessary correction. The long-term stability of the marketplace depends on restoring trust and ensuring that billions in taxpayer dollars are actually going to the people who need them.
