ACA Exchanges Face Widespread Fraud and Enrollment Abuse Amid Powerful Subsidy Incentives

The Affordable Care Act (ACA) exchanges have become vulnerable to massive fraud and improper enrollment, largely driven by policy design flaws and relaxed oversight during the COVID-19 pandemic period. According to findings by the Paragon Health Institute, more than 6 million people were enrolled in fully subsidized plans without eligibility in 2025, costing the federal government over $27 billion for improper subsidies. This problem stems from expanded subsidies that made coverage fully subsidized for enrollees claiming income between 100 and 150 percent of the federal poverty level (FPL), creating strong incentives for applicants and brokers to misstate income or enroll individuals without consent. Government Accountability Office (GAO) investigations expose systemic issues, with 96 percent of submitted fake applications approved and tens of thousands of unauthorized plan switches reported. Moreover, zero-claim or "phantom" enrollees — individuals who never use their coverage — have surged from under 4 million in 2021 to nearly 12 million in 2024, accounting for billions in taxpayer funds wasted on nonexistent utilization. These widespread abuses illustrate the weak verification processes and perverse subsidy structures inherent in the ACA exchanges. The COVID-era subsidy boosts, while increasing coverage, incentivized enrollment manipulation by capping enrollees’ premium payments regardless of rising premiums, effectively insulating insurers from competitive pricing pressures. Insurers benefited substantially, receiving over 83 percent of exchange premium revenues from federal subsidies, which have fueled stock price growth but not necessarily improved consumer value. The role of brokers and enhanced direct enrollment (EDE) platforms has been central to the problem. EDE platforms enable brokers to enroll individuals using minimal personal information, sometimes without their knowledge, exploiting regulatory loopholes such as the ability to override National Producer Numbers (NPN), which removes accountability. Cases of large-scale fraudulent activity have led to Department of Justice prosecutions, including convictions for schemes defrauding federal taxpayers of over $180 million by enrolling vulnerable populations such as homeless and mentally ill individuals. The presence of these systemic vulnerabilities has prompted legislative responses: The "One Big Beautiful Bill" (OBBB) incorporates integrity reforms to require verification before enrollment, end problematic special enrollment periods, and limit repayment caps for excess subsidies. However, experts assert that the fundamental incentive for fraud—the availability of zero-premium plans—remains unaddressed unless pandemic-era subsidy expansions are allowed to expire and minimum enrollee premium contributions are required. Apart from fraud, the ACA subsidy design has implications for labor market participation and employer-sponsored coverage. Enhanced subsidies may discourage work effort and lead to employers dropping coverage, shifting costs to more expensive federal programs. The subsidy structure creates significant financial incentives for individuals to forgo employer coverage in favor of ACA plans, underscoring systemic policy distortions. These findings highlight a critical need for reforms targeting the subsidy formula and market incentives to curb fraud, reduce improper federal spending, and enhance program integrity. Improved eligibility verification, tightened enrollment processes, and recalibrated premium cost-sharing are key policy levers to reverse current trends. Maintaining expansive subsidies without concurrent controls is likely to perpetuate widespread abuse and inefficiencies detrimental to taxpayers and the health insurance market's integrity.