Feds used unfair marketing scheme to sell insurance


February 10, 2015 by Tony Novak

Imagine that you were lured to an auto dealership last year by an advertisement offering huge rebates. Once inside the showroom, the sales person clinched the sale with you by telling you that you qualify for a rebate program that significantly cut your purchase price and monthly payments. Your buy the car and drive it around for a year. Then 14 months later the accounting office for the dealership tells you that you really did not qualify for the rebate so you now owe double or triple what you paid for the car. Not only do you owe a lump sum repayment right now for the discount of last year’s payments but all of your future payments will now be double or triple. Unfair, right? Your next move would be to complain about unfair sales practices, right? Yet that is exactly what is happening in the federal health insurance marketing game.

The government’s massive advertising blitz of Obamacare on TV, online and in print was largely based on the claim that most applicants qualify for a full or partial subsidy that reduced the cost of coverage. On average, the ads said, 4 out of 5 people enrolling qualified for an advance subsidy credit. It is clear that the advertisements and the government’s insurance sales people, called navigators, pushed the rebates to enroll more members.

The online and in-person insurance sales systems were designed to allow buyers and sellers to bend the truth to maximize the rebate. No proof of eligibility for the rebate was required. Buyers did not understand that they might owe some or all of this rebate back. Enrollers pushed the rebates when they thought that would help make the sale. And of course what happened is that far too much money was taken in subsidies.

Meanwhile, The IRS knew that some of those people did not qualify for the subsidy. One IRS spokesperson at a webinar I attended in mid-2014 said that about 4 million people out of the final net figure of 8 million enrolled who enrolled through the exchange would have to pay back some or all of their subsidy. To me, that screams admission of deceptive practices affecting 50% of all buyers!

Now as we enter the tax filing season, we have new information. Based on the anecdotal reports of tax preparers in online social media forums like LinkedIn and Facebook, it seems that the portion who owe a repayment of the subsidy might be higher than the 50% originally forecast. I’ve read perhaps 50 accounts of tax preparers doing early returns for clients with the new Form 1095A and a large portion report that a repayment was due. It certainly seems larger than 50% based on what’s been written about early tax filers.

Of course we do not have hard data at this point*. All of the numbers I used in this post are subject to a wide range of fluctuation even within the realm of official estimates. Yet the  conclusion is still solid: it is clear that the government effectively participated an unfair consumer marketing scheme to sell Obamacare policies to the American public.


* A report discussed in the editorial at https://www.linkedin.com/pulse/insurance-subsidy-rip-off-tony-novak-cpa-mba-mt issued after this blog post on February 14, 2015 includes reference to data gathered from 12,000+ taxpayers who received and health insurance subsidies.

5 thoughts on “Feds used unfair marketing scheme to sell insurance

  1. I am a health coverage guide. Every single person that I assisted this enrollment period qualified for APTC. No proof required. I think you are spot-on that many tax payers will be in for a big, bad surprise when they file this year.

    As the old adage goes, there’s no such thing as a free (or heavily subsidized) lunch.

    • One frequent trait of problematic organizational behavior is that each individual and office can rightfully claim no involvement in wrongdoing yet the overall impact is socially offensive. The definition of the term “double–dealing” accurately describes the overall effect of the program “the practice of pretending to do or think one thing while really doing or thinking something different : dishonest or deceptive behavior”. Yet is seems very much possible that this term does not describe the action of any individual or organization involved.

  2. There is now a confirmation based on 12,000 returns processed by one firm that more than half of people who took the subside owe some or all of it back. https://www.linkedin.com/pulse/insurance-subsidy-rip-off-tony-novak-cpa-mba-mt

  3. The question is how much of the subsidy will they have to pay back – if it is a small amount of money, they still received a good deal. If they owe most of it back, then they earned a much higher income then they projected and should pay their fair share. Do you have evidence that the enrollers hid the fact that the insureds might have to pay back part of the subsidy if they underestimated their income? Was there no notice of this in the online apllication? Perhaps the solution is to base the subsidy on the prior year’s income levels.

  4. Alan you raise valid questions that seem to go beyond the reach of what has been reported so far. At this early state, I simply want to point out the basic contradiction that existed throughout the 2015 enrollment season where the Health Insurance Marketplace Healthcare.gov advertised that the large majority of its customers qualified for a subsidy (in the range of 80%) in obvious attempt to sell more insurance while the IRS made several announcements about the high portion of recipients who would have to repay those subsidies (in the range of 40%). The contradictory overlapping statements by two branches of the federal government, taken together, amount to double-dealing, IMO, or at least some type of unfair play to the consumers who bought into the system. All of this was all speculative until the 2014 individual tax return results started coming in over the past few weeks and now there appears to be adequate evidence to support a “worse than we thought” conclusion.

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: