Two federal courts of appeals have issued contrary opinions on whether the Affordable Care Act (ACA) authorizes subsidies for enrollees on federally established health-care exchanges. The Supreme Court will ultimately decide if these subsidies are legal. But in the meantime, a just-released Government Accountability Office (GAO) report suggests that the procedures for determining eligibility for insurance and subsidies on the federal exchange are inadequate and prone to fraud.
The ACA established health-insurance exchanges to create marketplaces for individuals and employers to shop for health plans offered by private insurers. ACA section 1311 delegates responsibility for establishing these exchanges to the individual states. But section 1321 provides that, if a state doesn’t create an exchange, the federal government “shall . . . establish and operate such Exchange within the State.” Only 14 states and the District of Columbia set up their own exchanges. The federal government established exchanges in the remaining 36 states through its website, HealthCare.gov. Of the more than 8 million people who have signed up for plans through an exchange, 5.4 million did so through the federal exchange.
Section 36B of the Internal Revenue Code, enacted as part of the ACA, provides subsidies (tax credits) to individuals who purchase insurance through exchanges “established by the State under section 1311” of the ACA. While this would seem to preclude subsidies for individuals purchasing insurance through the federal exchanges, the nObama administration, through a 2012 IRS regulation, interpreted section 36B as allowing tax credits for insurance purchased on either state or federally established exchanges. Currently, 86 percent of federal exchange enrollees are receiving subsidies.
The nonpartisan GAO studied the controls in the federal exchange that determine eligibility for enrollment and subsidy. To enroll, an individual must be a U.S. citizen or a legal resident residing in the marketplace service area. To qualify for a subsidy, an individual must meet income requirements (between 139–400 percent of the federal poverty level) and must not be eligible for coverage under another qualifying plan—such as affordable, employer-sponsored coverage or a government program, such as Medicaid or Medicare.
Creating 18 fictitious applicants, some with invalid or nonexistent Social Security numbers and others who were noncitizens claiming lawful presence in the U.S., the GAO applied for subsidies through federal exchanges in several states via telephone, online, and in-person. For 11 out of the 12 applications made by phone or online, the GAO obtained subsidized coverage. (The only failed applicant declined to provide a Social Security number and was not allowed to proceed.) The marketplace requested supplementary documentation for 10 of the 11 approved applications. The GAO provided no documentation for three and counterfeit or partial follow-up documentation for the other seven. In the three months since, two of those seven applicants were notified that their proof of citizenship or immigration status had been verified; one also had his identity verified. Coverage remains in effect for all 11 approved applicants, even the three who never submitted documentation.
These results shouldn’t be surprising. The outside contractor used by the Centers for Medicare and Medicaid (CMS) to process submitted documentation has identified 4.3 million application inconsistencies and has in its possession hundreds of thousands of “orphan” documents that can’t be matched to an application. The contractor does not certify authenticity, engage in fraud detection, or use outside sources to confirm submitted documents. It merely confirms that submitted documents are legible and not obviously altered.
The federal exchange is not only poorly administered; it is also difficult to access. The GAO sent the remaining six fictitious applicants (the ones who hadn’t sought coverage online or by telephone) to test for income-verification controls by seeking in-person advice on how to report their incomes in order to obtain subsidies. Despite repeated attempts, the GAO couldn’t get such assistance for five of the six, for various reasons—problems with the HealthCare.gov website or service representatives’ inability or unwillingness to help them. Only one of the six fictitious in-person applicants was able to access a service representative, who correctly advised him that his income would not qualify him for a subsidy.
The nObama administration’s attempt to extend subsidies to federally established exchanges, despite clear language in the ACA limiting subsidies to state-created exchanges, is typical of the haphazard and arbitrary way the ACA has been implemented. The GAO study suggests that the federal exchange that has enrolled the majority of exchange participants has fundamental problems. And, in a separate report released last week, the GAO “found that CMS undertook the development of Healthcare.gov and its related systems without effective planning or oversight practices, despite facing a number of challenges that increased both the level of risk and the need for effective oversight.” Unless these problems are fixed, the federal exchange is likely to be an expensive fiasco, enrolling people who are not eligible and providing subsidies to people who shouldn’t get them.
“The bridge is safe,” California Department of Transportation officials intoned Tuesday at a state senate transportation committee hearing, so many times that chairman Mark DeSaulnier asked them to stop. The Concord Democrat was willing to concede that the stylish new eastern span of the Bay Bridge, ten years late and $5 billion over budget, was safe enough. Taxpayers and motorists alike might have cause to wonder, however, whether the bridge is more than twice as safe as the old one, as Caltrans bosses claim.
Despite his exasperated concession, DeSaulnier has repeatedly argued that Caltrans accepted substandard work at taxpayer expense, and he says he will ask Attorney General Kamala Harris to launch a criminal investigation. He’s touting a state senate report that charges that Caltrans bosses “gagged and banished” at least nine top bridge engineers, scientists, and other experts. In “closed-door meetings,” transportation department officials reportedly approved “extra millions” for “incentives,” “accelerations,” and “mitigations” to open the bridge by Labor Day last year. Their behavior, the report alleges, amounted to “an institutionalized, if not malicious, lack of transparency in the project.”
At an earlier hearing in January, witnesses told DeSaulnier in considerable detail how Caltrans bosses, pushing to complete the project, compromised public safety by ignoring problems with welds, bolts, and rods. Fabrication manager Keith Devonport, Skyped in from England, testified about flawed welds and “willful blindness” on the part of Caltrans managers “looking for ways not to look at some of the issues.” Caltrans geologist Michael Morgan testified that safety problems were kept secret, ignored, and covered up. Morgan was among the first to call for a criminal investigation. He brought his evidence to several state audit agencies, but none took action. So Morgan told his story to the Sacramento Bee, which published a series of investigative articles by Charles Piller highlighting the safety concerns.
Several storms in recent years exposed parts of the bridge to flooding, and corrosion was evident even before the span opened to motorists. A few months before the bridge was scheduled to open last year, dozens of long metal support rods snapped. Metallurgical engineer Lisa Thomas testified that this was due to “hydrogen embrittlement,” a problem Caltrans invited by opting to use Grade BD steel, rather than the more robust Grade BC. Thomas says that hydrogen is to this type of steel “as Kryptonite is to Superman.”
Caltrans also outsourced work to China, where workers produced cracked welds. Nathan Lindell, a former quality-assurance manager, testified that “the project was not built under the same rule book” as other California bridges. Chinese welders, he says, slept through training sessions. Caltrans engineer Douglas Coe noted that every one of the bridge’s 750 Chinese-made panels had to be repaired. After Coe raised concerns about defective welds, Caltrans project manager Tony Anziano—a lawyer, not an engineer—reassigned him. At the January hearing, Anziano denied telling anyone not to write anything down, thus avoiding disclosure under state public records laws. “There has been no concealment of issues,” Anziano insisted on August 5. He reassigned Coe, Anziano explained, because “he could no longer be a member of the team.”
Yet despite serious questions about the bridge’s safety, Caltrans director Malcolm Dougherty assured lawmakers that “quality was not compromised.” DeSaulnier had to press Daugherty to admit that Caltrans had made any mistakes working on the project. Steve Heminger, executive director of the Bay Area’s Metropolitan Transportation Commission, allowed that bridge managers had “traded money for time,” but “never once traded quality for time.” DeSaulnier wasn’t convinced. “I don’t believe you,” he said bluntly, noting that the department “audits itself,” and that in Caltrans culture, “you don’t go after the trouble, you go after the troublemaker.”
Since 2011, DeSaulnier has introduced six bills to reform Caltrans, including the creation of an independent inspector general. But Governor Jerry Brown vetoed them all. Referring to the bridge-safety concerns last year, Brown told reporters, “I mean, look, shit happens.” Earlier this year, Brown called the Bee’s investigative reporting “journalistic malpractice.” Tuesday’s hearing suggests that the real malpractice took place during construction of the bridge.
Referring to “disaffected citizens who don’t believe in government,” DeSaulnier has complained that Caltrans’ cost overruns, the ten-year delay, and safety worries have all helped erode public confidence, making Californians “averse to taxes” that the government needs for other infrastructure projects—like high-speed rail, which DeSaulnier supports “if it’s done right.” If it isn’t, and it reaches the same ratio of cost overruns as the Bay Bridge, California’s $68 billion high-speed rail project would cost upward of $272 billion by the time it’s up and running. DeSaulnier also mentioned a “water project,” surely a reference to Governor Brown’s $25 billion proposal to build a pair of tunnels under the San Joaquin Delta. The cost of those tunnels would be closer to $100 billion with cost overruns in proportion to the Bay Bridge. As the bridge hearings this week confirmed, that kind of malpractice “happens.”