Payment Integrity: Additional Coordination Is Needed for Assessing Risks in the Improper Payment Estimation Process for Advance Premium Tax Credits
Fast Facts
One option for buying health insurance plans in the U.S. is through marketplaces. The Affordable Care Act provided a tax credit in some cases to help individuals buy these plans. The U.S. government may pay this credit to insurance issuers in advance, which lowers the individual's monthly bill.
We reviewed methods 5 states and the U.S. government used to keep ineligible people from using the credit in state-based marketplaces. States checked most key eligibility requirements. However, states and the U.S. government haven't assessed whether more measures are needed to reduce the risk of payment errors. Our recommendations address this issue.
Highlights
What GAO Found
Control activities for preventing improper advance premium tax credit eligibility determinations varied among the selected state-based marketplaces. Selected states verified most key eligibility criteria for enrollment in the program using the Centers for Medicare & Medicaid Services' (CMS) Federal Data Services Hub. The Patient Protection and Affordable Care Act (PPACA) and CMS's regulations grant marketplaces flexibilities in the eligibility verification process. GAO found that all five selected states exercised certain flexibilities in their eligibility-verification processes, as detailed in the table below. However, CMS did not coordinate with the states to conduct a risk assessment to evaluate the likelihood of improper eligibility determinations when exercising these flexibilities. As such, states were not aware of residual risks—risks that remain after existing control activities have mitigated inherent risks—or whether additional risk-mitigation strategies were needed. Until CMS coordinates with the states to identify any residual risks, neither CMS nor the states will know if additional guidance or other actions are needed to mitigate these potential residual risks.
State-Based Marketplaces' Key Control Activities for Verifying Eligibility Requirements for the Advance Premium Tax Credit beyond Self-Attestation
|
Key control activities beyond self-attestation |
California |
Colorado |
Nevada |
New Jersey |
Pennsylvania |
|---|---|---|---|---|---|
|
Verifying identity on mail applications |
N |
Y |
Y |
Y |
Y |
|
Verifying residency |
N |
N |
N |
N |
N |
|
Identifying duplicate coverage through nonfederal employer-sponsored insurance |
N |
N |
N |
N |
N |
|
Identifying duplicate coverage through Medicaid in other states |
N |
N |
N |
N |
N |
Legend: N = Did not perform additional verifications; Y = Performed additional verifications
Source: GAO analysis of the selected state's information. | GAO-23-105577
Although CMS has developed a reliable methodology to estimate improper advance premium tax credit payments, it was limited to the 33 states that use the federally facilitated marketplace and did not consider the 18 states that operate their own. CMS has a process to engage with the states on the best way to incorporate them into the improper payment measurement program and on the related requirements. However, CMS's process does not consider residual risks in the state-based marketplaces' processes for verifying and determining eligibility. Without additional coordination with these marketplaces that includes assessing and identifying any residual risks to which they may be vulnerable, CMS's process for estimating improper payments may not reflect significant program risks. As such, the resulting improper payment estimate may be incomplete and provide a less useful basis for developing effective corrective action plans.
Why GAO Did This Study
To help taxpayers cover the cost of health insurance premiums, PPACA provides advance premium tax credits for individuals who meet certain eligibility requirements. For fiscal year 2022, the Department of Health and Human Services (HHS) reported an estimated $256 million in improper payments for the federally facilitated marketplace.
GAO was asked to review advance premium tax credit payment integrity efforts. This report examines (1) key control activities selected states and CMS implemented to prevent providing advance premium tax credits to ineligible individuals through the state-based marketplaces and (2) the extent to which CMS developed a reliable methodology to estimate improper payments in the program.
GAO analyzed policies and procedures for determining eligibility in plan year 2022 from CMS, and selected states to include those with the highest average monthly payment amounts and those with new and more established marketplaces (California, Colorado, Nevada, New Jersey, and Pennsylvania). GAO also reviewed CMS's improper payment estimation methodology for the advance premium tax credit for fiscal year 2022.
Recommendations
GAO is making two recommendations to CMS to coordinate with the states to assess residual risks when estimating improper payments, and to determine if additional guidance or actions are needed. HHS disagreed with GAO's recommendations. GAO continues to believe the recommendations are valid, as discussed in the report.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Centers for Medicare & Medicaid Services | The Administrator for CMS should, in coordination with the states, assess and identify residual risks to which the SBMs may be vulnerable related to eligibility determinations and take these risks into account when developing and implementing the improper APTC payment estimation methodology for the SBMs. (Recommendation 1) |
The Department of Health and Human Services (HHS) disagreed with this recommendation. In May 2026, HHS's Centers for Medicare & Medicaid Services (CMS) stated that it continues to non-concur with the recommendation that CMS take into account residual risks when developing and implementing the improper advance premium tax credit (APTC) payment estimation methodology for the state-based marketplaces (SBM). CMS stated that it has made substantial progress in developing an improper payment measurement program for State Exchanges. CMS stated that in February 2026 it published a proposed rule on the State Exchange Improper Payment Measurement (SEIPM), which proposes to establish the SEIPM beginning in January 2027. CMS also stated that it will be publishing a Final Rule in the near future. Last, CMS stated that its sampling estimation methodology will be similar to the one approved by the Office of Management and Budget (OMB) for the Federally-facilitated Exchange, based on the Payment Integrity Information Act of 2019 and the implementing guidance in OMB Circular A-123 Appendix C. As discussed in our report, OMB guidance states management must perform an assessment to identify and evaluate the potential payment integrity risks that the agency faces and that the identification of payment integrity risks should be a continuous process. Further, OMB encourages agencies to ensure that significant payment integrity risks are part of the estimation methodology so that estimates can be used to assist in identifying root causes. Without first identifying residual risks, there is an increased likelihood that CMS's estimation methodology may not address key risks of improper payments, such as those related to eligibility determinations. Therefore, we continue to believe that our recommendation is valid. We will continue to monitor agency's actions to address this recommendation.
|
| Centers for Medicare & Medicaid Services | The Administrator for CMS should, in coordination with the states, assess and identify residual risks to which the SBMs may be vulnerable related to eligibility determinations and identify any additional guidance or other actions, as needed, to mitigate any residual risks within the SBMs. (Recommendation 2) |
The Department of Health and Human Services (HHS) disagreed with this recommendation. In May 2026, HHS's Centers for Medicare & Medicaid Services (CMS) stated that it continues to non-concur with this recommendation, as CMS believes its existing regulatory framework, oversight processes, and ongoing program integrity activities already assess and address residual risks associated with eligibility determinations in state-based marketplaces (SBM). Accordingly, CMS maintains its position that this recommendation should be considered closed - not implemented. Since its prior status update, CMS stated that it has continued to strengthen its approach to identify, assess, and mitigate risks related to eligibility determinations and verifications in SBMs through a combination of regulatory action, oversight enhancements, and new program integrity initiatives. CMS stated that these actions reinforce CMS's position that residual risks are being actively addressed within existing authorities and processes. CMS said that it recently finalized new regulatory changes, and is working to implement new statutory requirements, all of which are designed to further mitigate residual program integrity risks related to eligibility determinations, including: Marketplace Integrity and Affordability Final Rule (June 2025); Working Families Tax Cut Legislation (July 2025); and 2027 Notice of Benefit and Payment Parameters Final Rule, which will establish a State Exchange Improper Payment Measurement (SEIPM) program to assess the accuracy of SBM eligibility determinations and quantify improper payment risk related to APTC beginning with Plan Year 2026. CMS added that it believes these regulatory and statutory developments collectively demonstrate CMS's ongoing and iterative approach to assessing and mitigating residual risks through formal policy channels. We continue to believe that CMS's existing regulatory framework, oversight processes, and ongoing program integrity activities for assessing and addressing residual risks does not replace the need for CMS, in coordination with SBMs, to evaluate the risks in making improper eligibility determinations and identifying any additional guidance or actions, if needed, to mitigate those risks. Therefore, we continue to believe that our recommendation is valid. We will continue to monitor agency's actions to address this recommendation.
|