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Odd way hundreds of homeless signed up for Obamacare

Brother, can you spare some Obamacare?

Giant insurer Aetna has severed ties with a North Carolina agent after questions were raised about his sales of Obamacare health plans to hundreds of homeless people in both North Carolina and South Carolina. The agent reportedly encouraged applicants to list income they supposedly expected to make during the year from barter, panhandling and illegal street hustling, such as drug sales and prostitution, on their coverage applications that he submitted.

Those sales by Charlotte-based agent Will Kennedy are under scrutiny by both state and federal regulators because of the question of whether some of those people may not actually be eligible for thousands of dollars of federal subsidies that are used to pay for each of their plans each year.

Obamacare Affordable Care Act
Andrew Harrer | Bloomberg | Getty Images

Those subsidies can leave low-income enrollees paying little or nothing in monthly premiums for the plans that were sold on HealthCare.gov, the federal Obamacare marketplace.

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To qualify for those subsidies, a person must have at least $11,700 in projected income for the year, and Kennedy reportedly admitted filing a "large number" of applications from homeless people projecting just that amount of income, according to the Charlotte Observer. More than 600 plans that Kennedy sold in the Carolinas are under scrutiny.

If they make less than that level, people are not eligible for the subsidies. And most if not all of them also would be ineligible for government-run Medicaid, because North Carolina and South Carolina have not expanded eligibility for that program under the Affordable Care Act.

The customers whom Kennedy signed up also were placed in plans with high deductibles, potentially leaving them personally responsible for thousands of dollars in out-of-pocket health costs—and rendered ineligible for free medical services in North Carolina because they now have private insurance.

Kennedy, 43, reportedly paid people to get homeless people to sign up, and stood to collect a total of as much as $9,000 a month in commissions from the amount of plans that were sold.

Aetna's termination of its relationship with Kennedy comes the same week as the U.S. Government Accountability Office revealed that its investigators had submitted Obamacare applications for 12 fictitious people, 11 of whom were approved for subsidized covered by HealthCare.gov, the federal Obamacare marketplace. Those 11 non-existent people were automatically re-enrolled in coverage this year.

CNBC revealed this week that TaxAudit.com, a leading tax audit defense company, had seen a very low rate of queries from the Internal Revenue Service about Obamacare-related tax issues for the company's clients. They said the IRS was not challenging any customers on claims they had health coverage as required by the Affordable Care Act, or any customer who was claiming an exemption from that rule, or any customer who had received an Obamacare subsidy and filed forms that purported to justify the amount they received. Instead, only customers who got subsidies but did not file required forms were being questioned, TaxAudit.com said.

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In June, the Charlotte Observer reported that North Carolina officials began looking into Kennedy's sales in April after a San Francisco health insurance software company reported "suspected fraud" when Kennedy used its software to sign up more than 600 people in North Carolina and South Carolina in just two days, with "most of them listing a projected income of $11,700 and many with addresses that turned out to be facilities for the homeless."

Kennedy, who sold Aetna's CoventryOne plans, told the paper in June, "What I have done, and what I make no apology for, is to work diligently to inform low-income individuals about their rights under the ACA and to help those who qualify obtain the health insurance for which they are eligible."

Kennedy also told the Observer that he had recruited a team of people to solicit business from homeless people with the message that if the homeless thought they could make $33 per day from sources including handouts, barter or prostitution or drug sales, that they could get free Obamacare coverage.

"It was all under my direction. I believe in what I'm doing," Kennedy said.

Kennedy did not immediately respond to requests for comment from CNBC.

Aetna spokesman Walt Cherniak told CNBC, "Aetna takes these allegations very seriously."

"We have investigated the matter and have terminated our business relationship with Mr. Kennedy," Cherniak said. "We also are assessing whether further actions are appropriate."

Read MoreObamacare tax audits few and far between

Cherniak didn't answer CNBC's questions about how many people were covered by Aetna plans sold by Kennedy, or whether that coverage remains in effect.

A spokesman for the federal Centers for Medicare and Medicaid Services, which oversees Obamacare and HealthCare.gov, told CNBC, "We take any allegations of fraud or abuse seriously and are working with the state to investigate and learn more about this issue."

"The marketplace verifies consumers' information in their application with our trusted data sources and gives consumers a chance to provide more up to date information where there is a conflict between their applications and the data sources," said Aaron Albright, the CMS spokesman. "We are committed to helping individuals and families get the financial assistance and Health Insurance Marketplace coverage they are eligible for while protecting taxpayer dollars at the same time."

A spokesman for the IRS, which issues Obamacare subsidies, had no immediate comment when contacted by CNBC.

To read the Charlotte Observer's stories about Kennedy click here, and here.