5 Ways Health Insurers Are Ripping Off Taxpayers

Health insurance companies receive nearly $1 trillion per year in taxpayer-funded Medicare, Medicaid, and ACA subsidy payments. The same companies collecting those payments have been caught---repeatedly, by the government's own auditors---systematically overbilling, upcoding, and defrauding the programs that fund them.

This is not a story about a few bad actors. The Government Accountability Office, the HHS Office of Inspector General, the Federal Trade Commission, the Department of Justice, and the Medicare Payment Advisory Commission have all documented the same pattern: America's largest health insurers routinely take far more taxpayer money than they are owed.

Here are five ways they do it.

1. Medicare Advantage Upcoding: The $84 Billion Problem

The premise of Medicare Advantage is straightforward. Private insurers cover Medicare beneficiaries, and the government pays them a monthly fee for each enrollee based on how sick that person is. Sicker patients generate higher payments.

You can see where this goes.

The Scale of Overpayment

In its March 2025 report to Congress, the Medicare Payment Advisory Commission (MedPAC) estimated that Medicare will spend $84 billion more on MA enrollees in 2025 than it would have spent on those same people in traditional Medicare. That breaks into two components: approximately $40 billion from "coding intensity"---recording more diagnoses to inflate risk scores---and approximately $44 billion from "favorable selection," meaning MA plans tend to enroll healthier-than-average beneficiaries whose actual costs are lower than their inflated scores suggest. The coding intensity component is more clearly attributable to deliberate insurer behavior; the favorable selection component reflects a structural flaw in the payment model that insurers exploit through plan design, prior authorization, and narrow networks that discourage sicker patients. (Source: MedPAC March 2025 Report, Chapter 11)

Updated data from MedPAC's January 2026 meeting revised the 2026 estimate to approximately $76 billion---lower than the prior year due to CMS's phase-in of a new risk adjustment model (V28), but still more than NASA, the EPA, and the National Park Service combined. The Committee for a Responsible Federal Budget projects these overpayments will total $1.2 trillion over the next decade ($470 billion from coding intensity and $730 billion from favorable selection). (Source: Healthcare Dive) (Source: CRFB)

Every Medicare Beneficiary Pays More

These overpayments come out of your pocket whether you chose a private plan or not. MedPAC estimates that Part B premiums are approximately $13 billion higher because of excess MA payments---roughly $198 per year for every Medicare beneficiary, including those in traditional Medicare who never enrolled in a private plan. (Source: MedPAC March 2025 Report, Chapter 11)

The Enforcement Record

The government knows this is happening. It has known for years.

For a deeper look at how Medicare Advantage upcoding works and what it means for your coverage, see our deep-dive on Medicare Advantage fraud.

2. ACA Marketplace Subsidy Fraud: $21 Billion Unverified

In 2024, the federal government paid an estimated $124 billion in ACA advance premium tax credits (APTC) to help Americans afford health insurance. A December 2025 GAO report looked at the system designed to prevent fraud in this program and found something closer to a screen door on a submarine. (Source: GAO-26-108742)

$21 Billion With No Reconciliation

GAO's preliminary analysis of tax year 2023 data could not identify evidence of reconciliation for over $21 billion in APTC---approximately 32% of total subsidies paid on behalf of enrollees who provided Social Security Numbers to the federal Marketplace that year. (Source: GAO-26-108742)

Important caveat: "Unreconciled" does not automatically mean "fraudulent." Some of these enrollees may have been legitimately eligible but simply did not file tax returns. But the GAO's findings suggest the system has no reliable way to tell the difference---and that is the problem.

The GAO's Undercover Test

To find out how vulnerable the system actually is, GAO investigators did something simple: they made people up. They created 20 fictitious identities and submitted applications for subsidized ACA coverage using fake Social Security Numbers, unverifiable identities, and fabricated income claims.

The results:

• 18 of 20 fictitious enrollees were still receiving subsidized coverage as of September 2025
• The Marketplace frequently did not request documentation---and approved coverage even when submitted documents were not credible or internally inconsistent

(Source: GAO-26-108811 Testimony)

Ninety percent. Nine out of ten fake people sailed through.

Fraud Indicators at Scale

The individual data points the GAO flagged are, if anything, more alarming than the aggregate numbers:

• $94 million in subsidies were paid for households with SSNs matching Social Security Administration death records---over 58,000 SSNs in plan year 2023 alone
• One single SSN was used on applications for over 125 insurance policies, totaling more than 26,000 days of coverage---the equivalent of 71 years
• CMS received more than 275,000 complaints of unauthorized enrollment or plan-switching in 2024
• CMS's fraud risk assessment was last updated in 2018---when the program was less than half its current size

(Source: GAO-26-108742)

In February 2026, the House Judiciary Committee subpoenaed eight insurers---Blue Shield of California, Centene, CVS Health, Elevance Health, GuideWell, Health Care Service Corporation, Kaiser Permanente, and Oscar Health---for information on their fraud-protection measures after the companies did not fully respond to voluntary requests. (Source: House Judiciary Committee)

For a full analysis of the GAO findings and what they mean for ACA enrollees, see our explainer on ACA subsidy fraud.

3. PBM Spread Pricing: How Pharmacy Middlemen Skim Taxpayer Programs

Pharmacy benefit managers (PBMs) are the middlemen between insurers, drug manufacturers, and pharmacies. The three largest---CVS Caremark, Express Scripts (Cigna), and OptumRx (UnitedHealth)---control approximately 80% of U.S. prescriptions. They also run taxpayer-funded programs like Medicaid pharmacy benefits.

$7.3 Billion in Specialty Generic Markups

In January 2025, the Federal Trade Commission released its second interim report on PBM practices. The headline finding: the Big Three PBMs generated $7.3 billion in excess revenue from specialty generic drug markups between 2017 and 2022---drugs dispensed at their own affiliated pharmacies at prices "hundreds or even thousands of percent" above acquisition costs. (Source: FTC Press Release, January 2025)

How far above acquisition costs? Capecitabine, a generic cancer drug, was marked up 3,289%. And 72% of specialty generic drugs were marked up more than $1,000 per prescription. (Source: FTC Second Interim Staff Report)

These are not exotic drugs. They treat cancer, HIV, multiple sclerosis, and other serious conditions---and much of the cost is borne by taxpayer-funded programs.

Medicaid Spread Pricing: The Ohio Example

"Spread pricing" works like this: a PBM charges a health plan one price for a drug, pays the pharmacy less, and pockets the difference. A 2018 Ohio state audit found that PBMs pocketed $224.8 million from Medicaid in a single year---with generic drug spreads averaging 31.4% of generic drug costs. (Source: Ohio Auditor of State)

Taxpayer money. Straight to PBM profits.

The Congressional Budget Office has estimated that banning spread pricing in state Medicaid managed care programs would save federal taxpayers $1 billion over 10 years. (Source: NCPA / CBO Estimate) That is a conservative estimate---it does not account for markups in Medicare Part D or commercial plans.

Congress Knew and Did Nothing

PBM reform provisions were included in the House version of the One Big Beautiful Bill Act (OBBBA), which would have required Medicaid prescriptions to be priced at NADAC (actual acquisition cost) plus a dispensing fee. The provision was stripped during Senate negotiations. The bill was signed into law on July 4, 2025---without PBM reform.

For more on how PBMs overcharge patients, see our guide on 4 schemes driving up your prescription costs and our analysis of the CVS-Aetna monopoly.

4. Illegal Kickbacks: Steering Seniors to the Wrong Plans

An eHealth executive once joked in an internal communication that "Humana was paying eHealth $15M/year for a [web]site that drives 15 enrollments per year," adding sarcastically: "CMS will surely never figure that one out... Luckily the govt [sic] are generally morons."

In May 2025, the Department of Justice figured it out.

The DOJ filed a False Claims Act complaint against three of the country's largest health insurers---Aetna, Elevance Health (formerly Anthem), and Humana---along with three insurance brokers: eHealth, GoHealth, and SelectQuote. (Source: DOJ Press Release, May 2025)

"Hundreds of Millions" in Kickbacks

The DOJ alleges that from 2016 through at least 2021, the defendant insurers paid "hundreds of millions of dollars in illegal kickbacks" to brokers in exchange for Medicare Advantage enrollments. Brokers allegedly steered seniors to whichever plans paid the highest commissions---regardless of whether those plans were appropriate for the patient's healthcare needs.

Disability Discrimination

The complaint also alleges something worse than fraud. Aetna and Humana allegedly pressured brokers to enroll fewer disabled Medicare beneficiaries---perceived as costlier patients---by threatening to withhold kickback payments. Brokers allegedly rejected disabled applicants and steered them away from these insurers' plans.

Paying kickbacks to enroll the profitable. Threatening kickbacks to exclude the vulnerable.

The Broader Pattern

The DOJ's FY2025 False Claims Act recovery statistics set an all-time record: $6.9 billion in settlements and judgments, with $5.7 billion---83%---coming from healthcare. (Source: Inside the False Claims Act)

Healthcare fraud is not a side issue. It is the dominant category of fraud against the federal government.

5. Regulatory Failure: The Watchdogs Who Will Not Bite

Every problem above has something in common: the agencies responsible for preventing it either failed to act, acted too slowly, or reversed course under industry pressure.

CMS Has Not Updated Its Fraud Risk Assessment Since 2018

When CMS last assessed fraud risks in the ACA marketplace, the APTC program totaled approximately $53 billion. By 2024, it had grown to nearly $124 billion. The program more than doubled. The fraud risk assessment did not change. CMS never developed a formal antifraud strategy based on its 2018 findings. (Source: GAO-26-108742)

IRS Reconciliation Was Paused for Four Years

CMS paused enforcement of IRS reconciliation requirements for APTC recipients from 2021 through 2024. During that period, individuals who received subsidies but never filed tax returns faced no consequences. The $21 billion in unreconciled subsidies identified by the GAO accumulated during exactly this window.

850 Brokers Suspended, Then All Reinstated

Between June and October 2024, CMS suspended 850 agents and brokers for suspected fraudulent or abusive conduct related to unauthorized ACA enrollments. In May 2025, CMS confirmed to the GAO that all 850 suspended brokers had been reinstated---with no public explanation of what investigatory steps were taken. (Source: KFF Health News)

All of them.

No Executives Criminally Charged

Despite billions in documented overpayments, record False Claims Act settlements, and an active DOJ criminal investigation of UnitedHealth Group---not a single major health insurer executive has been criminally charged. Every settlement to date is civil. Under False Claims Act settlements, companies do not admit guilt.

Kaiser Permanente paid $556 million for allegedly adding 500,000 false diagnoses over nearly a decade. Its own compliance office identified the problem. The company continued. The settlement amounts to a cost of doing business---roughly half the excess payments the scheme allegedly generated.

OIG Audits Confirm the Pattern

Of 44 OIG managed care audits conducted since 2017, 42 have focused on diagnosis coding issues---confirming that upcoding is not an aberration but the central enforcement concern in Medicare Advantage. (Source: Morgan Lewis Analysis)

What This Costs You

• $84 billion in MA overpayments represents roughly 6% of total Medicare spending---money diverted from a program that serves 67 million Americans
• Every Medicare beneficiary pays approximately $198 more per year in Part B premiums because of excess MA payments---whether or not they are enrolled in a private plan
• The $1.2 trillion in projected MA overpayments over the next decade directly accelerates the Medicare Hospital Insurance trust fund's projected insolvency in 2033
• The same companies overbilling Medicare---UnitedHealth, CVS/Aetna, Humana, Elevance---are the same companies processing your insurance claims and deciding whether to cover your care

When an insurer collects inflated government payments while simultaneously denying your claims, raising your premiums, and marking up your prescriptions---the system is working exactly as designed. Just not for you.

The medical loss ratio was supposed to cap insurer profits. But when the base keeps growing through inflated government payments, the "cap" scales with it.

What You Can Do

The insurance industry spent over $117 million lobbying Congress in 2024. The numbers in this article represent what they got in return---and what it cost you.