This article by Victoria Knight first appeared in KFF Health News, republished with permission.

The idea that Affordable Care Act marketplaces are riddled with fraud has become a major talking point among Republicans, as lawmakers in Congress argue about whether to extend the enhanced tax credits that are helping offset the cost of health care marketplace coverage for low- and middle-income people. Those ACA subsidies expire at the end of the year and have become a flash point in the government funding showdown.

“The tax credits go to some people deservedly. And we think the tax credits actually go to a lot of waste and fraud within the insurance industry,” said Vice President JD Vance during a recent interview on CBS News. “We want to make sure that the tax credits go to the people who need them.”

Key to the Republican argument of widespread fraud is a report published in August by the Paragon Health Institute, a Republican-aligned think tank. The report focuses on “phantom enrollees” in the ACA marketplaces.

Paragon president Brian Blase said these “phantom enrollees,” who don’t use any medical care in a year, exceed the percentages of “what you would expect in a normal, functioning health insurance market.”

Blase and his team say they have quantified the percentage of zero-claim enrollees in the ACA marketplace by analyzing Centers for Medicare & Medicaid Services data released in August.

This highlights one of the central issues with the CMS data: It tracks the number of plan enrollments rather than individual enrollees.

The federal data that Paragon analyzed could count enrollees twice if they’ve switched plans during the year, said Cynthia Cox, a vice president and the director of the Program on the ACA at KFF, a health information nonprofit that includes KFF Health News.

Per that data, in 2021, the percentage of enrollments without any medical claims was 19%. That percentage jumped to 35% in 2024.

To Blase and Paragon, this increase in zero-claim enrollments is evidence of fraud. It indicates, they say, that rogue insurance brokers are signing up people who don’t exist, don’t qualify, or have other insurance and don’t need ACA coverage.

“Basically, what happened is you had insurers benefit, brokers benefit financially, and just massive numbers of people got put on the program,” Blase said. That’s where these phantoms come in. “They have no idea that they’re enrolled, and, as such, they use no medical care.”

In 2021, former President Joe Biden signed into law the American Rescue Plan Act, which included enhanced ACA subsidies that made plans available at low or no cost to certain low-income individuals and expanded eligibility for subsidies to some middle-income people. Those credits were extended through 2025 as part of the Inflation Reduction Act, signed in 2022.

News stories show how simple it could be for insurance brokers in certain states to sign people up for zero-cost ACA insurance plans, unbeknownst to the consumers. The Department of Health and Human Services has tried to crack down on those fraudulent practices.

But health policy experts and analysts have cautioned against reading too deeply into the numbers of zero-claim enrollees.

“It’s not that he’s wrong, but I think he’s overinterpreting,” said Michael Cannon, director of health policy studies at the libertarian Cato Institute, of Blase’s analysis.

Cox said there’s evidence that plan-switching has increased, due in part to extended open enrollment periods. Increased plan-switching could make the number of people being double-counted higher in the federal data and increase the percentage of zero-claim enrollees over the years. Some enrollees also may have been on an ACA plan for only part of the year, which would make them less likely to make a claim.

“We’re not trying to argue there is no fraud. It’s a real thing. But the question is, how big of a scale is this problem?” Cox said. “Just suggesting that anyone who’s not using health care is a fraudulent enrollee — that’s not true. Plenty of people don’t use health care.”

It’s not uncommon for healthy people in an insurance marketplace not to use their insurance in a given year, according to health policy experts. And with the enhanced ACA subsidies, more people signed up for marketplace coverage. Enrollment data shows that it made the marketplace population younger, and younger enrollees may be less likely to use their insurance. A recent report found that each year from 2018 to 2022, an average of 23% of enrollees in employer-sponsored plans didn’t use their health insurance.

“Somehow the idea that people not using health insurance is some sort of a problem — it might be. But in principle it isn’t,” said Joseph Antos, a health policy expert and senior fellow emeritus at the right-leaning American Enterprise Institute. “The point is that for insurance to work, you need some people who are not making claims on the insurance.”

The main trade associations for insurers and hospitals, AHIP and the American Hospital Association, have also disputed Paragon’s characterization of the federal data and even published blog posts breaking down their arguments. AHIP pushed back on the idea that the insurance industry is profiting from the enhanced subsidies by stating that existing law caps health plan profits.

Paragon was started by Blase in 2021 and has become widely influential in Republican health policy circles. Alumni of the organization are staffers in the Trump administration and in House Speaker Mike Johnson’s office, so it follows that the group’s takeaways would become Republican talking points.

It’s also not new for the GOP to say that government programs are full of fraud. During the negotiations over the One Big Beautiful Bill, Republican lawmakers insisted Medicaid wouldn’t be cut to pay for the tax cuts, but that “waste, fraud, and abuse” in the health program would be eliminated.

Now, the ACA is center stage in the ongoing federal government shutdown, with Democrats pushing for Congress to extend the current ACA subsidies, which are set to expire at the end of the year. And fraud, again, is a centerpiece of the argument for Republicans. Democrats take a different view on the amount of fraud in the program, instead emphasizing how the subsidies’ expiration will increase insurance premiums.

“It’s become a boondoggle. It’s a subsidy for insurance companies,” Speaker Johnson said of the ACA subsidies at a shutdown press conference last week. “When you subsidize the health care system, and you pay insurance companies more, the prices increase. That’s been the problem.”

KFF Health News senior correspondent Julie Appleby contributed to this report.

KFF Health News is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFF—an independent source of health policy research, polling, and journalism. Learn more about KFF.

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This story can be republished for free (details).KFF Health News is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFF—an independent source of health policy research, polling, and journalism. Learn more about KFF.

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This article first appeared on KFF Health News and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.