[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]







                    HEARING ON THE INTEGRITY OF THE
                AFFORDABLE CARE ACT'S PREMIUM TAX CREDIT

=======================================================================

                                HEARING

                               before the

                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                               __________

                             SECOND SESSION

                               __________

                             July 23, 2014

                               __________

                            SERIAL 113-OS10

                               __________

         Printed for the use of the Committee on Ways and Means


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




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                      COMMITTEE ON WAYS AND MEANS

                      DAVE CAMP, Michigan,Chairman

SAM JOHNSON, Texas                   SANDER M. LEVIN, Michigan
KEVIN BRADY, Texas                   CHARLES B. RANGEL, New York
PAUL RYAN, Wisconsin                 JIM MCDERMOTT, Washington
DEVIN NUNES, California              JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio              RICHARD E. NEAL, Massachusetts
DAVID G. REICHERT, Washington        XAVIER BECERRA, California
CHARLES W. BOUSTANY, JR., Louisiana  LLOYD DOGGETT, Texas
PETER J. ROSKAM, Illinois            MIKE THOMPSON, California
JIM GERLACH, Pennsylvania            JOHN B. LARSON, Connecticut
TOM PRICE, Georgia                   EARL BLUMENAUER, Oregon
VERN BUCHANAN, Florida               RON KIND, Wisconsin
ADRIAN SMITH, Nebraska               BILL PASCRELL, JR., New Jersey
AARON SCHOCK, Illinois               JOSEPH CROWLEY, New York
LYNN JENKINS, Kansas                 ALLYSON SCHWARTZ, Pennsylvania
ERIK PAULSEN, Minnesota              DANNY DAVIS, Illinois
KENNY MARCHANT, Texas                LINDA SANCHEZ, California
DIANE BLACK, Tennessee
TOM REED, New York
TODD YOUNG, Indiana
MIKE KELLY, Pennsylvania
TIM GRIFFIN, Arkansas
JIM RENACCI, Ohio

        Jennifer M. Safavian, Staff Director and General Counsel

                  Janice Mays, Minority Chief Counsel

                                 ______

                    SUBCOMMITTEE ON HUMAN RESOURCES

             CHARLES W. BOUSTANY, JR., Louisiana, Chairman

DIANE BLACK, Tennessee               JOHN LEWIS, Georgia
LYNN JENKINS, Kansas                 JOSEPH CROWLEY, New York
KENNY MARCHANT, Texas                DANNY DAVIS, Illinois
TOM REED, New York                   LINDA SANCHEZ, California
ERIK PAULSEN, Minnesota
MIKE KELLY, Pennsylvania
















                            C O N T E N T S

                               __________
                                                                   Page

Advisory of July 23, 2014 announcing the hearing.................     2

                               WITNESSES

Seto Bagdoyan Acting Director, Audit Services, Forensic Audits 
  and Investigative Service, Government Accountability Office, 
  Testimony......................................................    11
 
                    HEARING ON THE INTEGRITY OF THE
                AFFORDABLE CARE ACT'S PREMIUM TAX CREDIT

                              ----------                              


                        WEDNESDAY, JULY 23, 2014

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:30 a.m., in 
Room 1100, Longworth House Office Building, the Honorable 
Charles Boustany [chairman of the subcommittee] presiding.
    [The advisory of the hearing follows:]

HEARING ADVISORY

  Boustany Announces Hearing on the Integrity of the Affordable Care 
                        Act's Premium Tax Credit

1100 Longworth House Office Building at 10:30 AM
Washington, Jul 16, 2014
    Congressman Charles Boustany, Jr. MD (R-LA), Chairman of the 
Committee on Ways and Means Subcommittee on Oversight, today announced 
that the Subcommittee will hold a hearing on the integrity of the 
administration of the Affordable Care Act's Premium Tax Credit. The 
hearing will take place on Wednesday, July 23, 2014, in Room 1100 of 
the Longworth House Office Building, beginning at 10:30 A.M.
    The Government Accountability Office (GAO) will be the only witness 
at the hearing. In view of the limited time available to hear 
witnesses, oral testimony at this hearing will be from invited 
witnesses only. However, any individual or organization not scheduled 
for an oral appearance may submit a written statement for consideration 
by the Subcommittee and for inclusion in the printed record of the 
hearing.
      

BACKGROUND:

      
    The Affordable Care Act (ACA) created tax credits and cost sharing 
subsidies for certain individuals purchasing health insurance through 
insurance exchanges. To ensure that payments only benefit those 
eligible and are made in the correct amount, the Federal Government 
must verify a number of pieces of information, including, identity of 
the applicant, date of birth, Social Security Number, income, lawful 
presence in the country, and other data. As the Congressional Budget 
Office projects that the Federal Government will distribute over $1 
trillion in subsidies over the next decade, it is critical that 
adequate measures are in place to protect taxpayers. The hearing will 
explore the integrity of the premium tax credit verification system, 
and whether it is vulnerable to fraud, waste, and abuse.
    In announcing the hearing, Chairman Boustany said, ``In recent 
years this Subcommittee has examined fraud, waste, and abuse in the 
execution of existing programs, such as the Earned Income Tax Credit. 
We know that the Federal Government wastes tens of billions of dollars 
each year in improper payments--what we don't know is how much more 
will be wasted under ObamaCare's new federal subsidies. We look forward 
to hearing from GAO and examining what is happening now that the 
subsidies are going out the door.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on the Federal Government's ability protect 
premium tax credits from fraud, waste, and abuse.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
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here to provide a submission for the record.'' Once you have followed 
the online instructions, submit all requested information. ATTACH your 
submission as a Word document, in compliance with the formatting 
requirements listed below, by the close of business on August 6, 2014. 
Finally, please note that due to the change in House mail policy, the 
U.S. Capitol Police will refuse sealed-package deliveries to all House 
Office Buildings. For questions, or if you encounter technical 
problems, please call (202) 225-3625 or (202) 225-5522.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
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files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word format and MUST NOT exceed a total of 10 pages, including 
attachments. Witnesses and submitters are advised that the Committee 
relies on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
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or organizations on whose behalf the witness appears. A supplemental 
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address, telephone, and fax numbers of each witness.
      
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noted above.
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://www.waysandmeans.house.gov/.

                                 

    Chairman BOUSTANY. This hearing will come to order. Good 
morning and welcome to this morning's hearing on the integrity 
of insurance premium subsidies under the healthcare law.
    Last month, this subcommittee and the Subcommittee on 
Health held a hearing that showed the administration's failure 
to implement effective eligibility verification systems would 
result in billions of the dollars in improper payments going 
out the door and unexpected tax debts for families across 
America.
    This morning, we turn to the question of whether the 
Federal exchange has sufficient controls in place to verify 
income and identity verification, including Social Security 
numbers, names and other information. On September 12th of last 
year, Chairman Camp, Senators Tom Coburn, Orrin Hatch and I 
wrote to Comptroller General Gene Dodaro asking that the 
Government Accountability Office conduct testing to determine 
whether the administration had in place appropriate internal 
controls to prevent fraud and abuse in health insurance 
exchanges. We asked that they do this through the GAO's 
forensic audits and investigative service, a team of forensic 
audit and investigative professionals who conduct special 
investigations and fraud assessments.
    To test these internal controls, GAO went undercover, 
created 18 fictitious identities to apply for insurance 
subsidies online, over the phone and in person. When GAO 
applied for premium subsidies online or over the phone with 
fictitious names, Social Security numbers and documents, it 
succeeded over 91 percent of the time. When GAO went to seek 
help from taxpayer-funded assisters, five teams out of six, 
they were turned away or unable to find help. When GAO sent in 
fake documents to support their applications, Federal 
contractors accepted those documents. Sadly, this is not 
terribly surprising, but it is really disturbing.
    Time and again the administration has chosen to either 
ignore the law, or when it does implement the law, it does so 
with a level of incompetence. The administration decided the 
employer mandate would harm its political and electoral 
interests, so it delayed the mandate. The administration found 
that the words of the law would prevent it from implementing 
Federal subsidies in a way it preferred, it ignored the law, 
and as the D.C. Circuit ruled yesterday, when the 
administration sought to implement Federal exchange--implement 
the Federal exchange and created healthcare.gov, the Web site 
crashed spectacularly. So when the administration began issuing 
billions of dollars in subsidies, we found that it did so 
without regard to protecting those taxpayer dollars from 
improper payments.
    This is not simply a question of whether one likes the 
President's health law or the way this administration has gone 
about implementing it. The question really is whether the 
administration is being a good steward of taxpayer dollars and 
putting in place adequate controls to protect those dollars 
from fraud, waste and abuse. This is about whether these 
subsidies are actually going to those who really need them and 
who have--who qualify them--qualify for them appropriately. The 
history of the healthcare law's implementation suggests that 
the answer has been no.
    Today we hear from Seto Bagdoyan, the acting director of 
the Forensic Audits and Investigative Service on GAO's 
preliminary findings in this matter. I want to thank him and 
GAO for this work.
    And look forward to your testimony, Mr. Bagdoyan, and also 
look forward to continuing to work with you on this issue.
    Now I would--I am very pleased to yield to the 
distinguished ranking member from Georgia, Mr. Lewis, for the 
purposes of an opening statement.
    Mr. LEWIS. Thank you for holding today's hearing, Mr. 
Chairman. I would like also to thank our witness for being here 
today. Thank you for being here, sir.
    Mr. BAGDOYAN. My pleasure.
    Mr. LEWIS. Let me begin by highlighting a simple and an 
important fact. The Affordable Care Act works. Last week, 
multiple reports from Gallup, the Commonwealth Fund and the 
Urban Institute provided Congress with a truth that cannot be 
denied, explained away or disputed. Today more Americans have 
health insurance than they did 1 year ago.
    Many of my colleagues on the other side of the aisle said 
that no one would sign up for the Affordable Care Act; instead, 
8 million people enrolled. There were claims that part of the 
law were too expensive, but last month HHS reported the average 
cost was only $82 per month for those receiving tax credits.
    Let me highlight some more indisputable ACA successes. 
Today, more than 17 million children with pre-existing 
conditions can no longer be denied coverage, 3.1 million adults 
can be covered on their parents' plan until age 26, and 105 
million Americans will no longer face bankruptcy because 
insurance companies will stop paying their medical bills. That 
is what the ACA did and we should be proud of this work.
    Despite constant attack, the prediction of disaster has 
simply failed to come true. Instead, the door to healthcare has 
opened for millions of Americans.
    Mr. Chairman, I would like to ask unanimous consent to 
insert two articles into the record. One is from Politico, 
entitled, ``The Verdict is in: Obamacare Lowers Uninsured.'' 
The second is from the New York Times, entitled, ``Obamacare 
Fails to Fail.''
    Thank you, Mr. Chairman.
    Chairman BOUSTANY. Without objection, they will be entered 
into the record.
    [The information follows: Rep. John Lewis 1, Rep. John 
Lewis 2]


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    Mr. LEWIS. It is clear that it makes no sense to continue 
attacks to the fund and destroy the healthcare law. There 
should be no fear in a good faith, bipartisan effort to make 
the ACA stronger and better for future generations. This is why 
I look forward to the testimony of the GAO about ways to make 
commonsense improvements to the ACA. In fact, there are actions 
we can take right now to find and fight waste, fraud and abuse. 
For example, Congress can provide adequate funding for the IRS 
and HHS enforcement systems so that all taxpayers will be 
protected. We have an opportunity to be proactive and not 
reactive.
    One thing is crystal clear, one thing is crystal clear: It 
is time for political stunts and baseless fear tactics to end. 
Success cannot and must not be dismantled. We will not go back 
to a time when Americans did not have access to affordable 
healthcare insurance. We will not destroy the ACA. I hope that 
all of my colleagues on both sides of the aisle will come 
together to strengthen and improve the historic benefits and 
protection of the ACA. It is time to move forward and do what 
is right, what is just, what is fair and what is responsible.
    Again, thank you, Mr. Chairman, and I yield back my time.
    Chairman BOUSTANY. Thank you, Mr. Lewis.
    Chairman BOUSTANY. Now it is my pleasure to welcome our 
witness, Mr. Seto Bagdoyan, acting director of Forensic Audits 
and Investigative Services at the Government Accountability 
Office.
    Thank you, sir. We really appreciate your time today. We 
appreciate the effort that you have put into this, along with 
your staff. The subcommittee has received your written 
statement. It will be made part of our formal hearing record. 
As is customary, you will have 5 minutes to give your oral 
remarks, and then we will open up for questions.
    Sir, you may begin.

                                 

 STATEMENT OF SETO BAGDOYAN, ACTING DIRECTOR, AUDIT SERVICES, 
     FORENSIC AUDITS AND INVESTIGATIVE SERVICE, GOVERNMENT 
            ACCOUNTABILITY OFFICE, WASHINGTON, D.C.

    Mr. BAGDOYAN. Chairman Boustany, Ranking Member Lewis and 
Members of the Subcommittee, I am pleased to be here today to 
discuss at a high level preliminary observations from the 
undercover component of GAO's ongoing review of the Federal 
healthcare Marketplace to test its enrollment controls. This 
review is at the request of this subcommittee, as the chairman 
mentioned, and others in Congress.
    In terms of preliminary results, Mr. Chairman, we used 
fictitious identities, false information and forged documents, 
as well as instructions from the Marketplace itself, to 
circumvent its front and back end controls.
    Accordingly, we obtained actual coverage for which we are 
paying premiums, the government is paying premium tax credits 
on our behalf directly to insurers totaling about $2,500 a 
month, or about $30,000 a year.
    At the outset, I would note that, one, observations are 
subject to change as we obtain and analyze additional 
information; two, enrollment test results can't be projected to 
the entire universe of applicants; and three, since our work is 
ongoing and involves the use of certain investigative 
techniques, I am precluded from discussing many details about 
this and future work in this setting.
    That said, the results in the two main components of our 
undercover work are as follows: First, in 12 fictitious 
applications, which were made by phone and online, we tested 
the Marketplace's front-end controls for verifying an 
applicant's identity or citizenship or immigration status. 
Marketplace applications require attestations that information 
provided is neither false nor untrue. The applications also 
stated income at a level to qualify for income-based subsidies 
to offset premium costs for tax credits and reduce expenses, 
such as co-pays.
    For 11 of the 12 applications, we obtained subsidized 
coverage. For the 12th application, the Marketplace did not 
allow us to proceed, because the applicant declined to provide 
a Social Security number as part of our test.
    In terms of back-end controls, the healthcare law requires 
the Marketplace to provide eligibility while any identified 
inconsistencies between information submitted by the applicant 
and what resides in government databases is being resolved 
through submission and verification of supplementary 
documentation. For each of the 11 approved applications, we 
were directed to submit supporting documents, such as proof of 
income or citizenship, but we found the document submission and 
review process to be inconsistent regarding similar 
applications. As of July of this year, we had received 
notification that some of the forged documentations submitted 
for two applicants had been verified, thus clearing the back-
end controls for these three documents.
    According to CMS and its document processing contractor, 
this contractor is not required to look for or detect fraud and 
accepts documents as authentic unless they are obvious 
alterations. We continue to receive subsidized coverage for all 
11 successful applications, including those where we did not 
provide any of the requested supporting documents.
    Second, in six other fictitious applications, we attempted 
to test the extent to which, if any, in-person assisters would 
encourage our applicants to misstate income in order to qualify 
for income-based subsidies. However, we were unable to obtain 
in-person assistance in five of six attempts. For example, one 
in-person assister said that he does not provide assistance--he 
provides assistance only after people already have an 
application in progress. The assister was not able to help us, 
because the healthcare.gov Web site was down at the time, and 
he did not respond to several follow-up phone calls. One in-
person assister correctly advised the applicant that he--that 
the stated income would not qualify for subsidy.
    Collectively, our undercover and audit work to date has 
highlighted key areas of inquiry about the Marketplace's 
controls, which we plan to pursue in depth during our remaining 
work.
    Mr. Chairman, this concludes my remarks. I look forward to 
the subcommittee's questions.
    Chairman BOUSTANY. Thank you, Mr. Bagdoyan.
    [The prepared statement of Mr. Bagdoyan follows:]
    
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    Chairman BOUSTANY. I want to thank you and your team for 
this first look at what appears to be a pretty significant 
problem with process and implementation with regard to these 
subsidies.
    And these findings, although preliminary, are quite 
troubling. Eleven out of 12 applications with false identities 
were approved and are receiving subsidies. Applications that 
falsified citizenship information were also approved. And then, 
on the back end, five out of six navigators and assisters are 
failing to help taxpayers. Federal contractors seem unable to 
uncover fraudulent documents. CMS is either unaware or unable 
to screen out fraudulent applications nationwide with regard to 
premiums and subsidies.
    This is all very troubling, and I am glad you are going to 
continue taking a more in depth look at this, because we look 
forward to revisiting the issue, but from your work so far, you 
know, in your official capacity, but also as an American 
citizen, are you really worried, are you really concerned about 
the total lack of effective controls that might result in 
significant fraud and more improper payments in this system as 
it stands?
    Mr. BAGDOYAN. Thank you for your question, Mr. Chairman.
    I would speak only on my--in my official capacity, of 
course, in this setting, but as I mentioned earlier, our 
investigative work and our audit work thus far has identified 
certain areas of concern that we plan to pursue as our work 
unfolds, as well as areas, such as the database of applicants 
itself, which will be at the core of our work.
    So I would say in summary that what we have so far is a 
number of questions that are fundamental regarding the 
effectiveness of controls, especially at the front end, where 
the preventative controls are paramount, as well as the back 
end, where traditionally they are relatively less effective, 
where you have a situation of a pay and chase, as we discussed 
earlier. So we are absolutely committed to focusing on controls 
in this regard.
    Chairman BOUSTANY. And we know that if we have--if we fall 
back into a pay-and-chase situation, it is very difficult to 
recover those dollars. Is that correct?
    Mr. BAGDOYAN. Well, according to GAO's fraud prevention 
framework, back-end controls are relatively less effective than 
strong preventative controls, so I would just respond in that 
context.
    Chairman BOUSTANY. Thank you. And your work also included 
interesting findings regarding two contractors and numerous 
grant recipients. One concerned a contractor hired to resolve 
identity verification and a second concerned a contractor hired 
to process paperwork that is unable to verify whether the 
document is actually authentic. Another finding concerned 
navigators and other assisters who were unable or unwilling to 
help your undercover applicants despite the fact that they had 
received tens of millions of dollars in Federal grants.
    Again, I know this is still a preliminary finding, but can 
you describe in greater detail GAO's experience with these 
groups? What--you know, what are we--what is your 
recommendation at this point, or do you have one, to correct 
these problems? This is troubling, because a lot of money has 
gone out the door in the form of grants to these--you know, 
these navigators. I have deep concerns about this.
    Mr. BAGDOYAN. Certainly. In all three instances, we have 
had an initial touch with these entities, so it would be 
premature to reach a judgment about effectiveness or not or 
certainly what needs to be done about them, but in terms of the 
contractor who was--who has been tasked with verifying 
identity, they did attempt to assist us during the call process 
after we were directed by the online system to do so. And when 
they were unable to verify our identity, they suggested that we 
call the call center, and as my statement alludes to, we were 
able to get coverage that way.
    Regarding the contractor who is tasked with verifying 
documentation at the back end, there is no provision to look 
for fraud in the contract itself. And we confirmed this with 
CMS officials as well as the contractor officials at our site 
visit in their facility in Kentucky, so----
    And then in terms of the navigators, again, it is a--it is 
an initial contact, and one person made the correct call on our 
application scenario, but the other five, for various reasons, 
were unable or unwilling to assist us.
    Chairman BOUSTANY. Okay. Do you have any more--can you shed 
any more light on why they were unable or----
    Mr. BAGDOYAN. In one instance, one assister said they 
didn't have sufficient training to do so. Another one said we 
needed to make an appointment, because we essentially were a 
walk-in at that--in that case and--but would not pick up the 
phone to make an appointment. And another two instances, I 
believe, there might have been a willingness to do so, but the 
Web site itself was unavailable at the time.
    Chairman BOUSTANY. Okay. Well, I appreciate that. This 
subcommittee and the Ways and Means Committee as a whole is 
taking our oversight function very, very seriously. We know 
this is a first look. We appreciate the work you have done, and 
we know this work is ongoing, and so we will look forward to 
revisiting these issues as you get more data and hopefully get 
to a point where you can make some specific recommendations to 
us.
    I have to say, the initial findings are deeply troubling to 
me. We know we are dealing with fraud and abuse in a number of 
other areas where tax credits and especially refundable tax 
credits are being utilized, which undermines the integrity of 
these programs and the intent of the programs to help those who 
really need help. And I think we are at a point now, clearly, 
we are at a point where this--these kinds of situations are 
intolerable. Whether you are a Republican or a Democrat, we 
cannot tolerate this level of fraud, abuse, taxpayer waste, and 
we need to root these things out, so we will look forward to 
continuing to work with you on these issues. Thank you.
    I will now yield to my friend, Mr. Lewis.
    Mr. LEWIS. Mr. Chairman, my friend, I want to thank you for 
yielding.
    Mr. Chairman, I want to ask you a question. Can you share 
with the Democratic Members of the Committee a copy of the 
letter that you sent to GAO? It is my understanding that GAO 
does not make public ongoing investigation.
    Chairman BOUSTANY. Yeah. We will be happy to share that 
letter with you. I was under the assumption that you had seen 
it.
    Mr. LEWIS. Well, thank you very much, Mr. Chairman.
    That will be most helpful.
    Mr. Director, let's get right to the heart of the matter. 
Have you drawn any conclusion at this point in your 
investigation?
    Mr. BAGDOYAN. No, sir, we have not. Our work is ongoing. As 
I mentioned earlier, this is our first touch-through looking at 
the controls, and we have identified certain areas for further 
audit and investigation as appropriate, but we can't draw any 
conclusions based on our current status.
    Mr. LEWIS. What is your time frame for concluding this 
investigation?
    Mr. BAGDOYAN. It is difficult to say at this point. It 
could be several months, but our work is very active, and we 
are receiving new information as we speak from CMS, and we will 
have a chance to analyze and follow up that, but we are looking 
at at least several more months, sir.
    Mr. LEWIS. What areas are subject to further review?
    Mr. BAGDOYAN. Sure. In general terms, I think there are 
various types of controls where they are at along the process, 
how they interact with each other, who is responsible for them, 
how they might benchmark against best practice, that sort of 
thing.
    Mr. LEWIS. And the false income information that the GAO 
gave, would that not be caught up during a true process? Can 
you explain this process?
    Mr. BAGDOYAN. I am sorry. Could you restate the question?
    Mr. LEWIS. Yeah. The false information that the GAO gave, 
would that be caught up during the true-up process?
    Mr. BAGDOYAN. I think what we used was part of the overall 
investigative plan, but the identities we employed, the 
information and the documents were all fictitious.
    Mr. LEWIS. The income process, how do you go about getting 
this information? Are you free, at liberty?
    Mr. BAGDOYAN. Well, in a general sense, we set our income 
levels within the range of eligibility to obtain subsidies, and 
that is pretty much all I can discuss at this time.
    Mr. LEWIS. Okay. Over the past year, a lot has been made of 
the problem with the Web site. Tell me how many fraudulent 
applications were you able to get past the Web site.
    Mr. BAGDOYAN. Our online applications, as I state in my 
formal statement, our applications were flagged for identity 
verification. We were referred to the contractor, who is tasked 
with resolving those identity questions. They were unable to do 
so. They referred us to the Marketplace's call center, and 
through the call center, we were able to bypass the initial 
flag and obtain coverage.
    Mr. LEWIS. Could you tell Members of the Committee, what 
are the benefits of cheating the ACA system? The money goes to 
the insurance company, not the individuals.
    Mr. BAGDOYAN. Yes. I mean, we are not receiving the 
subsidies directly to our accounts. They are paid by the 
government to the insurers directly upon presentation of what I 
would imagine would be some sort of an invoice on a monthly 
basis.
    Mr. LEWIS. Thank you very much, Mr. Director.
    I yield back my time.
    Chairman BOUSTANY. I thank the gentleman.
    Mr. Reed, you are recognized for questioning.
    Mr. REED. Thank you, Mr. Chairman.
    Thank you for the testimony today, sir. One of the pieces 
of information I found intriguing in your preliminary work is 
as you went through this work, my understanding is you talked 
with the officials of CMS that handle this situation, and they 
indicated to you that--the CMS officials told you that their 
experience has not shown the need for any changes in the 
eligibility determination process. So CMS is working with you 
throughout this investigation, correct?
    Mr. BAGDOYAN. Yes. We have been in touch with CMS officials 
and obtained documents and other information.
    Mr. REED. Very, very frustrating to me as a member of this 
oversight committee that the officials that are responsible for 
trying to implement this program are sending you and sending 
this body a message that they are not interested in making any 
changes to improve the situation, even though you have given 
them examples of clear, egregious violations of the procedures. 
Am I misunderstanding the response of CMS?
    Mr. BAGDOYAN. Well, I think that has been their position at 
the time. I believe in press reports regarding this hearing, 
the public statement that CMS made was their willingness to 
continue to work with GAO and identify areas where improvements 
were made. So I would have to reconcile those two statements 
during the course of our work.
    Mr. REED. Well, I would hope this oversight process and 
this public spotlight does do its job and gets CMS on the ball 
to not send a message that they don't want to work with you and 
others to clear up this clearly egregious behavior that you 
have discovered and that you continue to discover as you go 
forward with this investigation.
    There is another interesting thing in your written 
testimony that I read, and it is that you indicated that CMS is 
currently unable to identify who has made a premium payment and 
who has not. Is that accurate? I mean, did I read your 
testimony correctly?
    Mr. BAGDOYAN. Yes. That is our understanding, that that 
part of the back-end system, that is part of the broader data 
hub, I believe, has not been constructed, but there is a plan 
to do so, we just don't have a timeline for that to happen.
    Mr. REED. Okay. So there is a plan that CMS has advised to 
you that they have in order to verify that information?
    Mr. BAGDOYAN. That is our understanding at this time, yes.
    Mr. REED. But they can't give you a timeline as to when 
they are going to get that done or implemented or----
    Mr. BAGDOYAN. That's correct as of this date.
    Mr. REED. What are the details of that plan?
    Mr. BAGDOYAN. I can't comment on them. We can check back 
and see with my staff to determine. If we have appropriate 
documentation, we can get back to you on that.
    Mr. REED. So just say you don't know, and there is probably 
information out there that you could check?
    Mr. BAGDOYAN. There might be in our work papers set, but I 
am just not familiar with that plan specifically. So I don't 
want to give you a wrong answer. We will get back to you.
    Mr. REED. And am I correct in your testimony, though, too, 
that the insurers have given the information to CMS on the 
payment?
    Mr. BAGDOYAN. Again, that is our understanding, that the 
insurers provide a list and an amount of subsidy owed, and the 
government takes that self-attestation and reimburses the 
insurers for the subsidies directly without touching the 
enrollee, which is an important point to make.
    Mr. REED. So just so the American people understand that 
may be enrolled in these situations, what happens if the 
government doesn't catch the fact that they are not paying 
their premiums anymore with the individual's responsibility to 
repay back these premiums that may be erroneously or 
fraudulently issued to them?
    Mr. BAGDOYAN. Well, I think the requirement is that the 
applicant or the enrollee continue to make payments to be 
eligible for the subsidy, but that is a determination that I 
wouldn't be able to make in terms of what exactly the process 
would be for the government to follow up with that particular 
enrollee and determine why the payments are not being made, 
whether there would be a grace period to restart the payments.
    Mr. REED. Okay. But maybe I am not being clear. So if an 
enrollee doesn't make the premium payment and the subsidy 
continues to be provided to the insurer, correct?
    Mr. BAGDOYAN. I--that is a possibility, yes.
    Mr. REED. And then, subsequently, it is discovered that the 
premiums weren't made, isn't there an obligation on CMS' part 
or the government's part to go after the enrollee to say, hey, 
we gave you a premium subsidy that you are not entitled to, 
because the premiums weren't made? Is that--that is my 
understanding of it.
    Mr. BAGDOYAN. Thank you for your clarification. We are 
aware of situations like that, but so far, the audit part of 
our work has not focused on it, and we will be focusing on that 
area going forward.
    Mr. REED. Well, I appreciate that, because I am very 
concerned about the fraud and everything that you have 
uncovered in this preliminary report, but I am also very 
concerned that enrollees don't understand what is coming down 
the pipeline, because if CMS doesn't do its job, if the 
government doesn't do its job, if they continue to engage in 
this fraudulent behavior, then premiums are going out. That is 
one thing. That is wrong. That is illegal. That is a clear 
violation. But also if the premiums go out and the enrollees 
have to pay back those premiums because of some type of mistake 
that the government made, I hope the American people understand 
they are the ones who are going to be on the hook to have to 
pay this back, and not the insurer.
    I yield back, Mr. Chairman.
    Chairman BOUSTANY. Thank the gentleman.
    Mr. Crowley, you are recognized for 5 minutes.
    Mr. CROWLEY. I thank you, Mr. Chairman.
    I am interested in hearing about the concern for the 
enrollees. That is very interesting. My friend from New York 
spoke so eloquently about concern for the enrollees. I would 
just add for the record that 52 times my colleagues on the 
other side of the aisle have voted to repeal the Affordable 
Care Act, 52 times. I am not asking you to comment on that, but 
just to state for the record that 52 attempts by my colleagues 
on the Republican side of the aisle have been to repeal the 
entire act itself, so it is interesting to hear about the 
concerns for the enrollees.
    Quite frankly, Mr. Bagdoyan, I think that this hearing is 
premature. You have stated yourself that you have not finished 
your investigation. Is that correct?
    Mr. BAGDOYAN. Yes. The work is ongoing on the investigative 
and the audit front, yes.
    Mr. CROWLEY. And I would suggest that possibly part of that 
investigation, as Mr. Lewis was referring to, was seeing this 
through. Have any of your undercover investigators actually 
accessed any healthcare through these plans?
    Mr. BAGDOYAN. They have not.
    Mr. CROWLEY. They have not. And they are paying a premium--
they are paying a premium, and the government is giving a 
subsidy directly to the insurance companies, correct?
    Mr. BAGDOYAN. That is correct. As part of the investigative 
scenarios, that is correct.
    Mr. CROWLEY. So it appears as though you have operated a 
very sophisticated criminal operation here, not that your 
intention is criminal. In other words, if someone is thinking 
in terms of a criminal mindset to actually exploit the system, 
you are kind of working in that--that mode in an honest way, I 
guess you could say, right?
    Mr. BAGDOYAN. Well, that is part of our tasking, to 
investigate and----
    Mr. CROWLEY. And I appreciate that.
    Mr. BAGDOYAN. And it is the authority of the GAO to do 
that, sure.
    Mr. CROWLEY. And it is important from an accounting point 
of view in understanding and saving taxpayers. This is not 
accusatory towards you and what----
    Mr. BAGDOYAN. I understand.
    Mr. CROWLEY [continuing]. You are doing. I want to make 
that clear.
    Mr. BAGDOYAN. No worries.
    Mr. CROWLEY. But what is the ultimate price here for the 
criminal? Is it a free colonoscopy? What is the ultimate 
benefit to the criminal who is taking these risks to do this? 
You know, this isn't like Medicare fraud where the doctor is 
actually cooking the books to put more money into his or her 
pocket. Why would a noncitizen, for instance, risk discovery by 
applying for health insurance, or a fraudster with an illegal 
Social Security Number use them for this purpose when there are 
other obviously more lucrative ways in which to exploit those 
things? Why would they do that?
    Mr. BAGDOYAN. I am afraid I wouldn't be able to comment on 
the intent of anyone attempting fraud.
    Mr. CROWLEY. Let me ask you this question, then: in 
addition to the penalties in the Federal criminal law, the ACA 
has civil penalties for providing false information. Is that 
correct?
    Mr. BAGDOYAN. I believe that is my understanding.
    Mr. CROWLEY. So, in a perfect world, if people--again, if 
these were real criminals, if they were attempting to do this, 
they would probably be--they would have some knowledge that 
possibly there would be some penalties if this were uncovered. 
Is that correct?
    Mr. BAGDOYAN. I can't speak for individuals. There is, I 
think, sufficient information.
    Mr. CROWLEY. And, in fact, the two penalties are as stiff 
as $25,000 for failure to provide information and $250,000 for 
providing false information. That is a substantial amount. Is 
that not enough, or do you think we should maybe increase those 
penalties? Do you think that those penalties would have some 
impact on the criminal's intent to pursue this?
    Mr. BAGDOYAN. Again, Mr. Crowley, I would be hesitant to 
comment on that.
    Mr. CROWLEY. I appreciate that. I see that--I know that I 
am running out of time, but I see that my colleagues once again 
on the other side of the aisle are using this as an 
opportunity, I think, to exploit their dislike of the 
Affordable Care Act, and I know that they don't like it, I get 
that, but today, I guess the theatrical selection is much ado 
about nothing, because there is really nothing here yet until 
we see what happens in the true-up what the follow-up of the 
IRS would be in terms of determining whether or not that 
individual was eligible for those credits. And I know that they 
haven't helped in terms of making that even more helpful to the 
recipient of the credits themselves, so I appreciate that. It 
is just another attempt to try to smear, I think, the 
Affordable Care Act.
    More people are getting coverage, as my colleague from 
Georgia has said, and they are liking it. All the doomsday 
predictions haven't come true, and they are now trying to trump 
up new accusations that ignore the reality of it that people 
are actually accessing healthcare and enjoying it.
    Yes, there are instances where people misstate or wrongly 
estimate their income, and for those inconsistencies, they are 
later verified and corrected, and if not, they have to pay it 
back.
    So I think, you know, Mr. Bagdoyan, as I mentioned before, 
I do appreciate your work and you needing to do this and it is 
important work that you are engaged in, but I think it has been 
premature. It is like having an investigation of organized 
crime, and talking about an investigation that is going on 
before you have gotten to the conclusion. It tips off a lot of 
people that we may not want to be tipping off.
    With that, I will yield back.
    Chairman BOUSTANY. I thank the gentleman.
    Which underscores why we are taking a serious look at 
oversight early in this process, to avert problems and taxpayer 
dollars going out to waste, fraud and abuse, rather than 
letting this linger on for years on end and taxpayers being 
caught up in this trap.
    With that, I will now yield to Mr. Roskam.
    Mr. ROSKAM. Thank you, Mr. Chairman.
    Mr. Bagdoyan, the gentleman from New York, Mr. Crowley, 
said that this is an attempt to smear the Affordable Care Act, 
and I would argue just the opposite. I think the Affordable 
Care Act, to use his adjective--or his verb, is smearing 
itself, and he posed a number of hypotheticals to you. Let me 
move out of the hypothetical and into the actual.
    So, actually, based on this investigation, there were 12 
attempts to defraud the system, and 11 of those attempts were 
successful. That is right, isn't it?
    Mr. BAGDOYAN. That is correct, Mr. Roskam.
    Mr. ROSKAM. That is not hypothetical. Those are actual 11 
attempts that came up where the bad actor rang the bell and got 
a benefit that they weren't supposed to get. That is right, 
isn't it?
    Mr. BAGDOYAN. That is correct in these 11 instances.
    Mr. ROSKAM. I find that number, 11 out of 12, shocking, 
jarring, troubling; you know, pick your descriptor. Have you 
come to an opinion based on your experience as to how you would 
characterize the robustness of the program? I recognize your 
admonition at the beginning that you don't want to overlay, but 
for example, accept this hypothetical: if this trend were to 
continue and 11 out of 12 were to continue to be the trend and 
you were to lay that out over this entire program, how would 
you describe that net result?
    Mr. BAGDOYAN. Well, again, I would be reluctant to project 
based on this very limited sample.
    Mr. ROSKAM. I accept that at face value.
    Mr. BAGDOYAN. But as I mentioned, again, and I will 
underscore it in this instance, is that we have identified 
several areas of control that need attention, and our audit 
work will focus on that and benchmark against appropriate 
standards for us to make any kind of judgment in terms of 
forward looking in this regard.
    Mr. ROSKAM. Have you come to an opinion about the 
robustness of the Internal Revenue Service and their role in 
the 11 cases that you came across?
    Mr. BAGDOYAN. Our work has not touched the IRS as yet, but 
they are part of the overall scope of our work.
    Mr. ROSKAM. So the IRS inquiry is ongoing?
    Mr. BAGDOYAN. It is, yes. It is--it is active work as we 
speak, and that is one of the agencies we will be touching on 
in terms of their roles in controlling enrollment.
    Mr. ROSKAM. And this GAO report, this investigation came 
about as a result of a specific congressional inquiry. Is that 
right?
    Mr. BAGDOYAN. That is correct, at the request of Chairman 
Boustany and others.
    Mr. ROSKAM. I think that we are going to continue to have 
these episodic insights into the weakness of some of these 
things. And what we need to be doing and what Congress needs to 
be doing is advocating an overall structure for oversight.
    I have introduced H.R. 4158, which would create a special 
inspector general to monitor the Affordable Care Act, or SIGMA. 
Congress has appointed special inspectors general for things 
like the Troubled Access Recovery Program, TARP, Afghanistan, 
Iraq and elsewhere, where literally billions of dollars in 
waste have been uncovered.
    And if you think about the scope of what we are talking 
about here, CBO projects that over a trillion dollars in 
Affordable Care Act subsidies are going to be paid out over 10 
years. Those types of numbers just absolutely take your breath 
away. Even if a portion of the trend that you uncovered 
continues, these numbers are really jarring.
    The special inspector general approach that I have 
advocated would have a similar role with jurisdiction that 
spans all implementing agencies, and the ability to bring 
important data to light and hold the administration 
accountable. And in the case of subsidies, it is given specific 
oversight over the IRS and its implementation of the law more 
broadly, but also its subsidy verification and overpayment 
recapture process. So I think that there is a real opportunity 
here.
    Your insight is incredibly helpful. I want to join my 
colleagues in thanking you for the work that you are doing. We 
are not over-characterizing it, but we are really concerned 
about the depth and the problems that you have identified and 
articulated. Thank you for your time.
    And I yield back. Thank very much.
    Chairman BOUSTANY. Thank the gentleman.
    Mr. Paulsen, you are recognized for 5 minutes.
    Mr. PAULSEN. Thank you, Mr. Chairman.
    And I thank you for taking the time to be with us this 
morning. You know, we already knew that we were unable to 
verify income and eligibility information. We have had that 
discussion in this committee as the law has been put into 
practice, for those that are applying for health insurance, but 
this review, the review that you provide today, calls into 
question whether the government is even able to verify that 
these people who are applying for insurance are who they say 
they are. I mean, just those folks, it is just--you know, the 
11 out of the 12 cases that you mentioned earlier as a part of 
this review.
    And just to follow up a little bit on what Mr. Roskam had 
said, it is troubling to follow on the heels of your report, 
knowing full well that the inspector general for tax 
administration has already found seriously inadequate controls 
available in administering their part of the law. HHS, the 
Office of the Inspector General has already found their 
internal controls are deficient. And now we have this report 
where you have laid out 11 of 12 successful cases in 
defrauding, essentially defrauding the system. So we know that 
improper payments in other Federal programs have cost money. 
You look at the EITC over a 10-year period, costing taxpayers 
$132 billion. If you apply that percentage to what would be 
transpired into this extensive, expensive program with the 
Affordable Care Act, Obamacare, we are talking real money here, 
real money that can be prevented.
    But let me ask you this. I want to just follow up on a 
little different line of questioning, Mr. Bagdoyan. You stated 
that six of your 18 applicant scenarios included in-person 
applications through the navigators and those in-person 
assisters, but you tested--your testing had one problem. In 
five of the six scenarios, they were either unable to find 
these individuals or they were turned away, correct?
    Mr. BAGDOYAN. Well, the six cases are independent of the 
other 12, because they focused on testing the income control. 
And the five who were unable to assist us was done, as I 
mentioned earlier, for a variety of reasons. They said they 
didn't have sufficient training to do so, they focused on a 
narrow part of the applicant population, two of them were 
experiencing some Web site access problems at the times, and 
another one told us that we needed to make an appointment. When 
we attempted to do so onsite, we were advised to call, but our 
calls were unsuccessful.
    Mr. PAULSEN. Okay. So you have worked through this 
scenario. We know that CMS awarded these navigators that you 
were approaching $67 million in grants to help consumers 
complete their eligibility applications and the enrollment 
forms, and then other in-person assisters received this money 
as well, but your testimony, then, is suggesting that many of 
these groups may be pocketing that money, taxpayer money, 
without providing the services.
    Can you just describe a little bit about what your 
experience and GAO's experience was at trying to obtain in-
person assistance in your applications?
    Mr. BAGDOYAN. Yes. I would refer you to my answer earlier. 
There was a mix of having to make appointments, we were not 
able to make them on the spot, and we didn't get our phone 
calls returned, and there were also Web site problems. Someone 
said that they didn't have sufficient training, so they were 
uncomfortable in performing the service.
    Mr. PAULSEN. So there is insufficient training, the Web 
sites, you know, may be inaccurate or not working correctly. Do 
you expect that later, GAO, through your ongoing investigation, 
is going to name those entities where you sought assistance but 
you were unable to obtain it? In other words, is there going to 
be a trail of accountability here? Is that going to be part of 
your recommendation? Do you see that happening?
    Mr. BAGDOYAN. Well, we will have to look at the assister 
issue in the broadest context possible within the controls 
focus of our work. I can't really comment beyond what the 
implications are to the entire assister population, because 
this was, again, a very narrow slice of that population that we 
looked at. So we will take a variety of factors into 
consideration, but in terms of naming names, I don't think that 
at this time or in the future, we would necessarily go that 
route.
    Mr. PAULSEN. Well, and let me just ask this, then. So 
knowing 5 of 6 or 11 of 12, we are talking high percentages 
here, right, 80 to 90 percent of issues here. Is a part of the 
investigation, I would expect, accountability, right, as a part 
of your investigation, maybe not naming names, but naming those 
that--where the contracts were let, where the navigators were 
supposed to be providing these services, where there is no 
accountability in essence, correct?
    Mr. BAGDOYAN. I think from the perspective of looking at 
the controls in their totality, that is an area that we will 
take a look at, but, again, I would emphasize the narrowness 
and the smallness of our sample, and the percentages would be 
out of whack if we had something that would be projected to 
those populations.
    Mr. PAULSEN. Thank you, Mr. Chairman.
    Yield back.
    Chairman BOUSTANY. Thank the gentleman.
    Mr. Davis, you are recognized for 5 minutes.
    Mr. DAVIS. Thank you very much, Mr. Chairman.
    And thank you, Mr. Director.
    It seems to me that this is a very interesting 
investigation, that we are investigating what we think might 
happen. And I guess from watching television, I am of the 
opinion that much of the forensic work relative to 
investigations are about things that have occurred, and we are 
trying to find out how and why. It is interesting to me that 
the focus of the investigation is on individuals who would 
qualify for a subsidy, yet that there isn't anything that we 
can project they are going to benefit; that the beneficiaries 
become the insurance companies. It certainly does not become 
them. So if we can't establish any intent relative to fraud, 
then we can establish that maybe somebody who was helping them 
or somebody who was giving them information had not been 
trained as well as they should have been and, as a result of 
that, mistakes occur, and yet we still focus on them.
    Let me ask you, is the 11 out of 12, is that really 
accurate? I mean, it is hard to determine the accuracy of 
projections sometimes. Anyway, things don't always go as it 
looks as though they would, but is the 11 of 12, is that a firm 
level of accuracy that we really could expect?
    Mr. BAGDOYAN. Thank you for your question. The intent of 
this sample was not to project in any way. It is too small of a 
sample to do so, anyway. The intent of this phase of our work, 
the investigative undercover phase, is basically to identify 
areas for potential focus for our future work in terms of the 
overall controls and then the specific controls and tools and 
how they interact, where they are in the process and how they 
might work or not work depending on their application. So it 
was not intentional on our part to say, Well, 11 out of 12 we 
can project to the entire universe of applicants. And that is 
one of the limitations that I identified in my oral comments.
    Mr. DAVIS. I have always thought and felt that a bit of 
prevention is worth much more than the cure, and so surely if 
we can prevent things from happening, but I guess I am 
wondering, where would the money come from since we have not 
passed an HHS appropriation bill, since ``cut, cut, cut'' has 
been the theme of our colleagues on the other side? Where would 
the money come from to do this broad investigatory work that 
related across the board to these individuals who could get a 
subsidy, but it wouldn't go to them? I mean, what is----
    Mr. BAGDOYAN. Well, certainly, sir, I can't comment on the 
budget necessarily to do this work, but I would concur with 
your earlier comment about the importance of preventative 
controls, what we call the front-end controls. That is part of 
GAO's fraud prevention framework. So I would agree to that 
extent, that that is where the action has to happen, because 
the back-end controls traditionally are less effective.
    Mr. DAVIS. Well, thank you very much.
    I yield back.
    Chairman BOUSTANY. I thank the gentleman.
    Before we go to the next questioner, I also want to make 
the point, and I think you--it is highlighted in your report, 
that you--even though the sample size is small, you sampled 
diverse areas of the country, rural and urban. So it sort of 
gives us, even with a small number, kind of a broad snapshot 
of--within the confines of those small numbers, that we have a 
trillion dollar program over 10 years, we are very concerned 
about the integrity of the program, and safeguards on the front 
end, which we know are more effective than trying to go through 
pay and chase, which as we know from other programs, that is 
not effective in recouping and protecting taxpayers. And so I 
just wanted to make that point, and if--and I want you also to 
state for the record a little bit about the fact that you 
looked at diverse areas, both urban and rural.
    Mr. BAGDOYAN. Certainly we tried to have a representation 
of different geographic locations in the country, and within 
those geographic locations, we attempted to represent urban and 
rural settings so that we had, given, again, our limited 
sample, as diverse coverage as possible.
    Chairman BOUSTANY. And you will continue the investigation 
along those same lines, so----
    Mr. BAGDOYAN. Right. As more information becomes available, 
the more we analyze, we will identify, as appropriate, 
additional steps in that regard, yes.
    Chairman BOUSTANY. Thank you.
    Mr. Marchant, you are recognized for 5 minutes.
    Mr. MARCHANT. Thank you, Mr. Chairman.
    And thank you, Director, for this report.
    I guess the word is out to America that what we have 
suspected all along is true. Wall Street Journal says 
fictitious applicants get to U.S. health insurance tax credits. 
The Washington Post says, Federal uncover investigation signs 
up fake applicants for ACA coverage and subsidies. And then NBC 
comes out and says, GAO sting finds it easy to fake it. Get 
Obamacare premiums.
    So what we have suspected since we passed this law and it 
began to be implemented is that it is another Federal program 
that is going to be easily scammed and easily accessed by 
someone willing to commit fraud. We have several programs in 
the Federal Government that we find out daily that that is 
happening to.
    I guess we also found out what the new definition of a 
navigator is. The new definition of a navigator is a fraud 
assistant agent. It is something that we have suspected since 
the first TV and news stories came out when we found people in 
these agencies not being able to answer questions, some of them 
had criminal backgrounds. From the very beginning, we suspected 
that the people that were going to be assisting people to sign 
up to this program were not qualified to do so. This report, 
this preliminary report completely ratifies that.
    In one of these stories, it says that 4.3 million of the 
applicants have some inconsistency in their application, 4.3 
million, and the agents and the contractors that are supposed 
to be vetting these inconsistencies are so far behind, they 
will never catch up, never catch up to verifying these 
inconsistencies.
    This last year, this year, we will have spent $17 billion 
on this program, another Federal program. Where did the money 
come from? The money came from taxpayers. In the last year, 
millions of taxpayers in the United States have found out that 
they are paying for Obamacare; they are paying in extra taxes. 
So it is the responsibility of this committee, it is the 
responsibility of this Congress to make sure that those 
taxpayers, those hardworking taxpayers do not have their money 
wasted, and so I think that your preliminary report has done a 
great service to this Congress and this committee, because it 
is giving us some direction now in finding out exactly how to 
address this problem.
    When you gave the navigators the information, did you 
provide income information?
    Mr. BAGDOYAN. Yes. I would refer you to my opening 
statement where I said that the one person who did assist us, 
correctly identified our income, which we gave this person, as 
being outside the boundaries of qualifying for a subsidy. So we 
did provide a number, and this assister assessed that number 
and correctly told us that it was outside of that bound.
    Mr. MARCHANT. So your--in these 11 to 12 cases--in all 12 
cases, you provided the IRS with income that was verifiable and 
you provided them with a Social Security Number that was 
verifiable?
    Mr. BAGDOYAN. We provided a series of data points as part 
of the application, but I will remind you that the six 
navigator scenarios are not intended to seek coverage like the 
other 12 were. So it is a technical nuance, but it is a very 
important one to make. But we did provide information online 
during our online application process, and then when we 
switched over to the telephone process, we were submitting 
various bits of information, yes.
    Mr. MARCHANT. So you could draw the conclusion that, as 
flawed as the Web site started and as flawed as it is and as 
flawed as it is, and now on the back end as you described, 
catching those fraud and catching those inconsistencies, the 
Web site, you found you--it was much more difficult on the Web 
site to give them false information and sign up than it was if 
you would switch to a navigator?
    Mr. BAGDOYAN. Well, we were flagged on the online process. 
We were referred to the contractor, who was intended to clarify 
or verify our identity. When they weren't able to do so, they 
directed us to the call center, and that is where we got 
through in terms of obtaining coverage.
    Now, I would say that when we did provide information as 
part of the application process, there were inconsistencies 
that were flagged, and we subsequently received requests to 
submit documentation which would be--to substantiate the 
information we were providing, and that is the documentation 
that is now at the back end with the contractor, who processes 
that documentation. And as I mentioned earlier, in several 
instances regarding two of our applicants, those documents have 
been verified as authentic.
    Mr. MARCHANT. Thank you, Director.
    Chairman BOUSTANY. I thank the gentleman.
    Ms. Jenkins, you have 5 minutes.
    Ms. JENKINS. Thank you, Mr. Chairman. Thank you for having 
this important hearing.
    Mr. Director, thank you for being here. We are very 
concerned about this GAO report and your findings that the 
premium tax credit offered by enrollment in the exchange is 
vulnerable to abuse. In particular, it is concerning to me. 
This subcommittee has held two similar hearings on this topic 
this year. And your findings have confirmed our fears.
    When Commissioner Koskinen of the IRS testified on this 
subject back in May, he told this subcommittee that he hoped, 
he hoped taxpayers would do certain things, such as notifying 
the exchange of life events, so that their subsidies would be 
adjusted, but acknowledged that more public outrage might be 
necessary to ensure that the enrollees are compliant.
    In June, a panel of tax experts told this subcommittee that 
it was very unlikely that taxpayers would notify the exchange 
of their life events. I am afraid that this will leave those 
receiving premium tax credits on the hook for thousands of 
dollars in penalties in the future.
    Now this GAO report highlights the broader problem of 
intentional waste, fraud, and abuse of premium tax credits by 
providing that these agencies simply do not have the 
infrastructure necessary to verify this information before 
handing taxpayer dollars to bad actors. Instead of doubling 
down on the investigating wrongful premium tax credits, CMS 
issued a proposed rule in late June that will automatically 
reenroll participants in the exchange for 2015.
    So I have several questions for you. First, do you believe 
that the administration currently has the ability to accurately 
verify eligibility for these premium tax credits? And do you 
believe that it will be possible for CMS to accurately verify 
eligibility for the current enrollees in time for open season 
in November?
    Mr. BAGDOYAN. Thank you for your question. At this point, 
we haven't touched those areas, but they are within the scope 
of our work. And as appropriate, we will follow up vigorously. 
And again, within the broad context of looking at all the 
controls, that would be part of the picture, definitely.
    Ms. JENKINS. Okay. But you saw nothing that indicated that 
these----
    Mr. BAGDOYAN. Not at this point. We narrowly focused on our 
investigation at the beginning of our overall work to, again, 
touch several controls and see which areas were candidates, if 
you will, for additional focus.
    Ms. JENKINS. Okay. Fair enough. Could you just comment on 
whether you believe automatically reenrolling exchange 
participants is a good idea?
    Mr. BAGDOYAN. I can't comment. That is really not part of 
our scope right now. So I can't comment on that.
    Ms. JENKINS. Okay. Thank you.
    I yield back.
    Mr. BAGDOYAN. My pleasure.
    Chairman BOUSTANY. I thank the gentlelady.
    We will next go to Ms. Black for 5 minutes.
    Mrs. BLACK. Thank you, Mr. Chairman.
    I want to thank you for having this very important hearing. 
These are subject matters that we have been talking about for 
quite some time, at least since I have been here for the last 3 
and a half years and ones that are close to my heart.
    I want to reiterate the fact that this is so important, as 
you said, Mr. Chairman, that these dollars do not go out the 
door and then us try to retrieve them. We know from other tax 
credits that have been given, that there is billions of dollars 
that go out and we never receive those back. So this is so 
important that we get this right now and take care of this, 
because those dollars are precious, and they need to be used 
for people that truly need the assistance. So thank you again. 
Let me ask you about something that is not in your report and 
has not been mentioned here today, and that is there were two 
major planks to the ACA. One is the verification of an income 
to make sure that someone qualified for those subsidies. But 
the second was that if you had employer-sponsored insurance, 
you would not be eligible for those subsidies. And I don't see 
anything here to show that that is one of the major planks that 
we should be looking for. Are you looking at that major plank 
in the work that you are doing?
    Mr. BAGDOYAN. I am not familiar with that particular 
aspect. It is a big plan. But we would be happy to get back to 
you on that particular point.
    Mrs. BLACK. Well, I know that the data hub was supposed to 
do a lot. And we looked at that data hub from the beginning and 
knew that it was very complicated. As a matter of fact, a 
number of people who are experts in the industry said it was so 
complicated they didn't believe that it ever could be done. So 
the data hub was supposed to be one of the mechanisms to be 
used, but I am just really curious, because I don't know that 
we know how many people currently are applying for these 
subsidies that potentially would not be eligible because of 
their employer-sponsored insurance. So I would really love to 
hear back from you on what your thoughts are on that because it 
is a major plank. And I think that we have got to make sure 
that that one is covered as well.
    As far as the income verification goes, again, the data hub 
was supposed to be the mechanism to be used that it would then 
ping into the IRS. The IRS would then get that information back 
to say whether that was good information or not. But would it 
make sense in your opinion that they would be using something, 
say, like Equifax that is being used by the SNAP program to 
verify income?
    Mr. BAGDOYAN. I believe Equifax does have a role, but I 
would have to, again, check and confirm that and get back to 
you.
    Mrs. BLACK. Do you also know in your investigation whether 
this administration has provided any deadline for these 
contractors to complete the remaining inconsistencies? Because 
I understand there is a large number of those. So, in the 
meantime, people potentially are getting the subsidies, but it 
seems that it is going to take a long time to have those 
inconsistencies verified. Do you have any information to share 
with us on where this administration is going?
    Mr. BAGDOYAN. Based on our visit to the document processing 
contractor's facility, they are actively trying to clear out 
the backlog of inconsistencies. But in terms of timing, I would 
have to again get back to you on that if there is a specific 
end date for that process. But as you can imagine, there are 
hundreds of thousands of application-related documents that 
need to be vetted and cleared. And there are also, as my 
statement alludes to, a number of documents which cannot be 
matched against applications as well.
    Mrs. BLACK. And then my final comments, really more 
comments than anything, but when we looked at the navigators, 
and I read all of the rules and regulations related to the 
navigators, and noted at that time that it would be pretty 
difficult for a navigator with a small amount of training that 
they received to even be able to help somebody work through a 
very complicated system, especially if that individual had a 
complicated application process. So I would be very interested 
to see what additional information you get back about what 
navigators are able to do for those who come to get assistance. 
And there certainly is a difference between the navigators and 
the navigator assistants, the assistant navigators, because 
there is a big difference in their training. So I would be very 
interested to see, as you complete your report, on the kind of 
information and help that are given to people, given the amount 
or the lack of education that they really have in order to take 
on that role.
    Thank you, Mr. Chairman.
    Chairman BOUSTANY. I thank the gentlelady.
    Mr. Kelly, you are recognized for 5 minutes.
    Mr. KELLY. I thank the chairman.
    Mr. Bagdoyan, thanks for being here today. I was reading 
through your testimony last night. United States Government 
Accountability Office. That is who you represent. What is your 
job? I mean, why even create a GAO?
    Mr. BAGDOYAN. Well, GAO exists to serve the Congress in its 
investigative and oversight capacity in its broadest term.
    Mr. KELLY. Okay. So, I mean, it is kind of an early 
detection, right? I mean, if you were in the private sector--I 
got to tell you, I came out of the private sector. If I had the 
ability to go to an agency before I made an investment, kind of 
the look-before-you-leap type of philosophy, because in the 
private sector you are not allowed to make a mistake. You go 
out of business. To have the ability to look ahead and see what 
the total cost of this program was going to be; where are the 
traps on this? Where were the downfalls on this? What could 
possibly go wrong? When you look at the numbers, these are 
staggering. There is nobody in the private sector that would 
look at this model and say you know what, I think that is 
acceptable. My God, you just can't do those things, not in the 
private sector.
    Now, in government, it is kind of fun because we work with 
OPM. And for those of you that aren't in the private sector, 
that means other people's money, in this case hardworking 
American taxpayers' money. So it is easy to throw those dollars 
around and say you know what, unintended consequences. Doggone 
it, we did it again. And we are going to have the GAO do a 
study. And then you do a study, and we say, well, wait a minute 
that is too limbed. You can't tell me that and expect me to 
believe that somehow down the road this has a happy ending. 
What do you see coming? And I am just talking about from a 
practical everyday American's outlook on life. People that get 
up every morning, throw their feet out over the bed, go to work 
so that they can put a roof over their children's heads, spoons 
on the table, clothes on their backs, and keep giving money to 
a government who they are trusting to spend it the right way, 
and we are finding out that they don't even trust us any more 
than that because we have wasted so much of it. The district 
that I come in, you know what people watch? They don't watch 
dollars, they watch pennies. And the old adage is if you watch 
pennies, you pay attention to pennies, the dollars will add up. 
My God, $17 trillion and climbing in the red ink here, and we 
are still saying, you know what, this is all hypothetical. Come 
on, if we can't do these wonderful things. But it comes down to 
this. Our job in this body is to protect the hardworking 
American taxpayers' investment, their tax dollars, and make 
sure that they are being spent the right way. And if we find 
something wrong, early detection is always the best way to get 
a correction. Certainly in your health it is much better to 
find out early on that you are on the wrong trajectory and you 
have to change your lifestyle or you have got to do something.
    So just tell me, the GAO, the job that you are doing, you 
are looking at things right now, and there has got to be bells 
and whistles going off everywhere. And it is my understanding 
that the administration was told, you know what, light is not 
green. It is yellow, and it is about at the end of its yellow 
term. It is going to turn red real quick. You better look 
before you leap. You better make sure that you are spending 
this money the right way because you are collecting it from 
people who go to work every day and put that money in this 
furnace. That is where the revenue comes from. It does not come 
from Congress. It comes from the American taxpayer.
    So I just wonder, as you go on with this study, is there 
anything that you look at and think, well, my gosh, I think if 
we keep going the way we are going, things are going to be all 
right because this is all hypothetical. And I got to tell you I 
am fed up with every issue that involves policy that affects 
the American people to be about politics. Really? Really. If 
you came here for a political career and you didn't come here 
for the people that you represent, then my God, take a look at 
the mirror and say, am I still doing what they sent me to do? 
So you are sitting there every day. You are watching this go 
on. You got to sit there and just pull your hair out and say, 
you know, I keep telling them that it is not working. I keep 
telling them that they are wasting dollars. And they keep 
saying to me, too early. Too early. This is too partisan. You 
are seeing this coming. Where does this lead as we go forward?
    Mr. BAGDOYAN. Mr. Kelly, our work is definitely ongoing. In 
the next several months, we will be looking again, as I 
mentioned earlier, at a wide range of issues. And when we issue 
our report, we are likely to have recommendations to address 
the issues we have identified and direct those recommendations 
to the relevant agencies. And they are supposed to get back to 
us with their specific plans within 60 days of how to begin 
implementing those.
    Mr. KELLY. I hope it works better for you than for me, 
because the people I have talked to said, you know what, Kelly, 
you got to get reelected. I have just got to get through this 
cycle. The people I talk to, the bureaucrats, the problem is 
that you folks don't understand, this is our career. And we 
will keep doing what we have to do. There is something 
drastically wrong here. And I would hope that you are able to 
stay on line and keep doing what you do best.
    I just think that sometimes you try to help people, and 
they turn a deaf ear and a blind eye to what you have offered 
them. And I see that happening here. And at the end of the day, 
it is the American taxpayer who foots the bill for every single 
thing that comes out of their pockets. And they have co-signed 
a note for the future that includes their children, their 
grandchildren, and their great grandchildren. And we sit here 
with our eyes covered and our ears plugged and say, no, no, no, 
this is just politics. It is not politics. This is about 
people, and it is about the American people. I thank you for 
your work. And please keep doing what you are doing. God bless 
you.
    Mr. BAGDOYAN. Thank you.
    Chairman BOUSTANY. I thank the gentleman. I think he made a 
very eloquent case for early and aggressive oversight because 
he certainly made clear that the American people do want 
accountability.
    Thank you, Mr. Bagdoyan. Thank you to you and your staff 
for appearing before us today, and the important work that you 
are doing. Please be advised that members may have additional 
questions they may submit in writing to you.
    Mr. BAGDOYAN. Absolutely.
    Chairman BOUSTANY. And we expect answers to be made part of 
the record.
    And with that, this subcommittee now stands adjourned.
    [Whereupon, at 11:42 a.m., the subcommittee was adjourned.]

                                 
    Member Submissions For The Record

                           Rep. John Lewis 1

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                           Rep. John Lewis 2

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                   Public Submissions For The Record

                              Tim Albright
                              
                              
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