by Kerby Anderson

A federal subsidy, often called “the Obamaphone,” could be losing nearly $500 million annually. That is the accusation made by one FCC Commissioner in a letter sent to the Universal Service Administrative Company. The company is a nonprofit organization that administers a fund that provides a monthly $9.95 subsidy for telecom service to low-income consumers.

The subsidy has expanded beyond its initial purpose. It was originally established to help low-income consumers in rural areas obtain access to 911 services. It was then expanded to include cellular devices. In March it expanded again to include Internet service.

The subsidy is limited to one per “independent economic household.” But cell phone companies can override that restriction if applicants check a box stating they represent a separate household, even if they have the same address. This is where the FCC Commissioner suspects fraud has taken place. More than 35 percent of the cell phone subscribers used this override. The annual cost for these apparent duplicates is nearly $500 million.

The Obamaphone story illustrates two key principles about government programs. First, once a program is started it never dies, but usually expands. The original government program was to provide 911 service to low-income consumers in rural areas. The Obamaphone has become a fixture in urban communities across the nation.

Second, any government program can be subject to fraud and abuse, especially when government agencies are lax in enforcement. The override process was supposed to help a few, but people figured out how to game the system and get an Obamaphone for more than just one family member.

If you want to understand why so much fraud exists in the federal government, you just need to look at what has happened in the last few years with the Obamaphone.