When Medicaid Unwinding Meets AI: In the Matter of DeLoitte Consulting   

By February 1, 2024, more than 16 million Americans had lost Medicaid as a result of the unwinding of the special Medicaid continuous enrollment protections that applied during the Covid public health emergency. Now a new lawsuit, In the Matter of Deloitte Consulting, alleges that these losses are, in part, being driven by a deeply flawed eligibility review process that relies on “smart” technology, and whose fundamental problems were well known even before unwinding began.  Texas’s system is the focus of the complaint, but according to the complaint, some 20 states use Deloitte technology.  The suit represents not only a novel use of federal consumer protection laws but also a groundbreaking test of the Biden administration’s principles for the use of artificial intelligence, as set forth in a Presidential Order titled “Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence.”

That Medicaid coverage is being disrupted on such a massive scale is itself a reflection of a fundamental weakness in the nation’s largest public insurance program: complex eligibility rules so sensitive to even the slightest changes in income, health, or family status that coverage instability is an inherent program feature and continuous eligibility monitoring is a required program element.  This weakness is a remnant of Medicaid’s origins as a programmatic adjunct to cash welfare assistance.  Not only does it result in coverage instability, but it necessitates unbelievably complicated and ongoing eligibility monitoring systems. 

For over a half century, states have struggled with the Medicaid eligibility process, one driven by voluminous federal regulations and subject to countless lawsuits challenging unlawful denial or termination.  The Deloitte case, in some ways, represents a twenty-first century version of this sadly familiar pattern. It is an outgrowth of the Affordable Care Act that largely preserved Medicaid’s byzantine eligibility rules but sought to streamline the process through the use of technology-reliant systems thought to reduce errors and improve efficiency. 

Of course, these systems are only as good as their ability to incorporate the extensive income, family status, and health information needed to determine eligibility and to correctly apply this information to individual cases.  For years, as the complaint describes, states and others have documented the flaws in Deloitte’s products. Now its systems are being put to use to an unprecedented degree over a compressed, Congressionally mandated timeline that began on April 1, 2023, and is to be completed by  June 30, 2024.

Ahead of the unwinding process, HHS officials had projected that unwinding would trigger enrollment losses of around 15 million people, nearly half for procedural reasons (i.e., reasons unrelated to an actual determination of ineligibility).  By January 2024, unwinding already had blown through that estimate, with 70% of coverage losses labeled as procedural terminations, meaning loss of coverage for reasons other than actually being ineligible, for example, failing to provide requested documentation. Documentation is needed when the streamlined, mechanized ex parte review process fails because it lacks needed information. If the ex parte review process itself is dysfunctional, the number of people at risk for procedural termination escalates, given the administrative navigation challenges faced by a poor population, disproportionately burdened by poor health and unstable living conditions.  Furthermore, if the mechanized system fails to correctly capture eligibility rules, the number of people improperly facing coverage termination also skyrockets.

The complaint, filed with the Federal Trade Commission (FTC) by the National Health Law Program, the Electronic Privacy Information Center, and Upturn, alleges that Deloitte engaged in unfair and deceptive business practices by knowingly and deceptively marketing defective eligibility determination software systems that states (specifically Texas, whose program is the focus of this complaint) have relied on, and that as a result, thousands of consumers have been harmed.  The harms alleged come in two basic forms: actual and erroneous application of federal eligibility rules; and an ex parte system riddled with problems that tells people more documentation is needed and then gives them an unlawfully short time period to supply needed information and navigate through the system.  In other words, the Deloitte system failed on every count—in its nearly complete inability to perform ex parte reviews, and in its outright erroneous application of federal eligibility rules.

Beyond the maze of longstanding federal consumer protection laws alleged to have been violated, the complaint also argues that the use of these defective systems amounts to a violation of the administration’s commitment to the safe and proper development and use of the artificial intelligence systems on which the entire Medicaid eligibility determination enterprise rests (as well as the system for determining eligibility for need-based programs, including supplemental nutrition assistance, housing, social services, and others). The complaint asks the FTC to order a halt to the use of Deloitte products until corrections are made and tested, and to provide ongoing oversight to ensure that once re-operationalized, these systems remain safe to use.  As the complaint points out, the harm in failing to take such action is the loss of health care itself.

The harms alleged in the complaint read like a parade of horribles amounting to a complete violation of federal eligibility rules: unlawful termination of pregnant women and newborns during their special guaranteed eligibility periods mandated by law; erroneous termination of Medicare beneficiaries who rely on Medicaid not only for supplemental coverage but also for payment of Medicare Part B premiums; termination of children no longer eligible for Medicaid rather than automatically rolling them into Texas’s CHIP program, which uses a higher income eligibility standard; termination of entire households, including children entitled to more generous coverage levels simply because a single person (e.g., a parent) is ineligible; failure to correct known and documented errors and to quickly reinstate children and adults wrongfully terminated; and failure to apply the right eligibility categories when reviewing eligibility, as well as failure to carefully check all possible eligibility categories before closing cases.

Most striking perhaps is the system’s unbelievably bad ex parte performance. Nationally, states show a 32% success rate in using the ex parte system to renew coverage, meaning that about a third of cases put through the ex parte process are successfully renewed. In Texas, the success rate is alleged to stand at 2.9%.  Essentially, according to the complaint, an ex parte review system does not function in Texas.

The bottom line: Of 1.8 million impoverished children and adults (many elderly or disabled) removed from Texas’s Medicaid rolls to date, an unknown (but presumably large) number of case closures are attributable to a nonfunctioning ex parte system or outright eligibility determination errors. 

Everyone knew that Medicaid unwinding would not be pretty. No one quite grasped, however, how ugly it could get.

Statement from Deloitte Consulting LLP

“Deloitte is not the subject of litigation relating to this work. The allegations from the advocacy organizations regarding our work for the State of Texas are without merit. Every day, Deloitte collaborates with hundreds of government agencies throughout the country and is deeply committed to positively impacting the people they serve. The innovative technology systems we help states develop and maintain provide health and human services benefits to millions of individuals and families. In all states, we work at the direction of our clients to implement state-specific policies, rules and processes. During the unwinding of the federal Public Health Emergency, we have worked closely with states to minimize the challenges for those going through the Medicaid eligibility redetermination process.”

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