Biden’s COVID credits—pandemic-era subsidy add-ons that made many exchange plans “free”—drove massive improper enrollment. Paragon estimates 6.4 million people were placed in the fully subsidized 100 to 150 percent of the federal poverty level (FPL) category after the 2025 open enrollment period, despite not having that income. This improper enrollment was fueled by fraud schemes run through enrollment intermediaries, enriching insurers that pocketed subsidies for people who never used their plan.
In a blog post last week, I highlighted a striking indicator of this problem—a surge in individual market enrollees without any medical claims. Newly released Centers for Medicare and Medicaid Services (CMS) data shows that 35 percent of individual market enrollees had zero claims in 2024. This percentage contrasts with about 15 percent of privately insured non-elderly adults who typically have no claims in a year.
In 2024, nearly 12 million people had individual market exchange coverage but filed zero claims—more than triple the number from just three years earlier, before Biden’s COVID credits. Some enrollees only had coverage for part of the year. When annualized, nearly 8 million people had exchange coverage for a year but never saw a doctor or filled a prescription. In 2024, insurers were likely sent more than $40 billion in subsidies for people who received no health care.
Zero-claim enrollees are the highest in the category of enrollees with extremely low cost-sharing. Roughly 40 percent of enrollees with a fully subsidized, extremely low cost-sharing plan filed no claims in 2024—double the percentage from three years earlier. People in this category have strong incentives to use that coverage, but many never did. This pattern is consistent with phantom enrollment: people who do not even know they are enrolled or who already have other coverage.
The surge in zero-claim enrollees is yet further evidence of massive fraud and abuse in the heavily subsidized individual market. The chaos created by Biden’s COVID credits opened the door for intermediaries to exploit the system, while insurers collected tens of billions in subsidies for enrollees who never used their plan.
Paragon’s findings quickly attracted attention. Last Friday, AHIP, the insurers’ trade association, rushed out a flawed rebuttal for congressional staffers—with problems that I review below. On Monday, The Wall Street Journal editorial board highlighted Paragon’s work on improper and phantom enrollees in “The Phantom Patients of ObamaCare.”
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Paragon quantified the amount of improper exchange enrollment in 2024 and 2025 in two papers, The Great Obamacare Enrollment Fraud and The Greater Obamacare Enrollment Fraud. There have been numerous news articles that explain the schemes that have led to such massive improper enrollment, but the best was a Bloomberg piece, “Chasing Big Money with the Health-Care Hustlers of South Florida.”
In Paragon’s work on improper enrollment, we define an improper Obamacare enrollee as someone enrolled in the income category to receive a fully subsidized plan (100 to 150 percent of FPL) who does not actually have that income. Our estimates come from comparing exchange sign-ups in the range between 100 to 150 percent of FPL to Census data on eligible enrollees— adults ages 19 to 64 in that income category who are not on Medicaid or Medicare.
Phantom enrollees refer to the number of enrollees exceeding the normal baseline of enrollees who do not use care in a year. In other words, people who are enrolled but do not actually exist in the market. National data show that about 15 percent of privately insured adults ages 18–64 and 4 percent of children under 18 did not see a doctor or health care professional in 2023. Consistent with this, roughly 20 percent of ACA enrollees in both the individual and small-group markets had no claims over the 2019 to 2021 period. As The Wall Street Journal correctly noted, most healthy people use their insurance for at least something each year. The unprecedented surge of enrollees with no claims after Biden’s COVID credits is consistent with large-scale phantom enrollment. Phantom enrollees typically are unaware of their coverage or have other coverage and were fraudulently enrolled in an exchange plan.
These numbers cast doubt on concerns that permitting the enhanced subsidies to expire would reduce health care. The number of individual market enrollees who did not use their plan a single time in 2024 is about twice the number of enrollees projected to drop coverage if Biden’s COVID credits expire. Insurers are desperate to keep the higher cross-subsidies flowing that hide the cost of ACA regulations. A much better approach would be to pursue meaningful reforms to lower individual market premiums.
The ACA’s design relied on cross-subsidies—overcharging younger, healthier enrollees while using taxpayer dollars to pull them into the market to subsidize premiums for older and sicker enrollees. This structure both inflated premiums and required ever-expanding subsidies to mask those costs. As economist John Cochrane explains, “Cross subsidies are an underappreciated original sin of economic stagnation.” According to Cochrane, by forcing businesses to undercharge some and overcharge others, cross-subsidies distort the true costs of services, disrupting market signals and incentives for efficiency.
Cochrane also explains that overcharging cannot stand competition, so the government stamps out competition, and gradually the whole system has become bloated and inefficient. The Biden administration attempted to stamp out competition by restricting short-term plans while throwing more and more government subsidies at the market to hide the cost of ACA regulations. Congress and the Trump administration have an opportunity to reverse course, improve the market, expand competition, and reduce the economically costly cross-subsidies.
AHIP Error #1: AHIP claims that Paragon doesn’t know how insurance works and that an individual who is a low-utilizer one year may be a high-utilizer the following year, or vice versa.
Response: AHIP is right that utilization varies, but that does not explain the surge of zero-claim enrollees confined to the individual market. Health insurance is different from other types of insurance. The vast majority of health care expenditures, including for routine doctor visits, lab tests, or prescriptions, runs through insurance. Even healthy people typically have at least an annual check-up or prescription refill, so zero-claim years are rare. By contrast, many years typically pass before filing a home or auto claim. Since the vast majority of health spending flows through insurance, we should expect far fewer zero-claim years than in other types of insurance. The sharp rise in zero-claim enrollees therefore, reflects systemic distortion that enriched insurers and middlemen without delivering care.
AHIP Error #2: AHIP claims that these are not phantom enrollments, citing data that shows only about 2 percent of households lost subsidies because of a failure to file taxes and reconcile (FTR) their subsidies.
Response: Contrary to AHIP’s claim, the rate of individuals who lost their subsidies because of FTR is not a reliable indicator of fraud or ineligibility because Biden’s two-year delay in removing non-filers masks the problem. Starting in 2024, the Biden administration implemented a policy that individuals can only lose eligibility for the advanced subsidy (sent directly to health insurers) if they fail to reconcile their subsidies two years in a row. This changed the policy set by President Obama that ended the advanced subsidy after only one year of FTR. There is now a significant lag in the number of people who would lose their subsidies for FTR. Although the Trump administration recently finalized a rule that reverted to the one-FTR policy, this change takes effect for the 2026 plan year, so 2024 and 2025 FTR data still reflect the Biden-era two-year delay.
AHIP Error #3: AHIP claims that insurance became more affordable with the Biden COVID credits.
Response: The total cost of the program skyrocketed because of the surge of waste, fraud, and abuse. Biden’s COVID credits didn’t reduce health care costs—they just shifted them to taxpayers while padding insurer and enrollment intermediary profits. The rise of zero-dollar premium plans fostered waste, fraud, and abuse, even as more than one in three enrollees used no care.
AHIP is correct that the enhanced subsidies drove up enrollment. But they created strong incentives for improper enrollment, while delivering an enormous expansion of corporate welfare that benefited the big insurance companies that AHIP represents.
AHIP Error #4: AHIP recycled claims from another industry lobbying group about the methodology Paragon used to estimate improper exchange enrollment.
Response: In a piece earlier this month, Liam Sigaud and Niklas Kleinworth reviewed and dismantled the criticisms of Paragon’s methodology, demonstrating how we sought and used the latest and most reliable data. In fact, our estimates of improper enrollment likely understate the problem. I summarized Liam and Niklas’s piece in last week’s newsletter.
Source: https://paragoninstitute.org/newsletter/dont-believe-ahip-improper-and-phantom-obamacare-enrollees-are-both-major-problems/
