Six Ways Criminals Commit Welfare Fraud—And Six Ways to Stop It
- BY FGA
As long as there’s been welfare, there’s been welfare fraud.
It’s undeniably been worsened by the COVID-19 pandemic and the influx of new funds into state and federal programs, but fraud has been around as long as these programs have existed.
Even before the pandemic, the national payment error rate in food stamps had been on the rise. In 2019, more than $3 billion were lost to overpayments alone. In public housing programs before COVID-19, fewer than 75 percent of households paid the correct amount of rent, including $500 million in rent improperly paid by public housing authorities rather than tenants.
Those examples seem like pocket change when compared to the waste, fraud, and abuse that runs rampant in our Medicaid programs. In the past few years, taxpayers had to shell out more than $100 billion just to cover the improper payments, most of which was caused by eligibility errors.
These previous surges largely stemmed from deliberate policy choices made by the Obama administration, and then were exacerbated due to COVID-19. Cracking down on welfare fraud isn’t only the right thing to do—it’s one of the only ways we can ensure that the safety net is strong and secure for when people truly need it.
To drive home how damaging fraud is, let’s take a stroll down memory lane. Here are six of the common ways criminals have stolen from these programs in recent history, and the best ways to stop more fraud from happening again.
#1: Misusing Resources for Personal Gain
In 2015, Alabama law enforcement officials conducted Operation T-Bone, an investigation that resulted in 242 arrest warrants for 17 individuals at 11 convenience stores. The stores were buying EBT cards for roughly 50 cents on the dollar and then using them to buy food in bulk to later sell at their own stores.
In July of this year, two men who operated a restaurant called JD’s in Madison, Wisconsin were caught supplying their restaurants with more than $90,000 worth of food bought with 358 different SNAP cards issued by Wisconsin’s food stamp program. Unfortunately, this is a story that is often found in newspapers around the country.
#2: Charging Medicaid for Services that Weren’t Provided
More than any other welfare program, Medicaid opens state budgets up to incredible amounts of waste and fraud.
Lorna Dukes spent three years submitting claims of service for her business to Medicaid and had taken more than $200,000 from Florida’s Medicaid program for services she never provided. That came to an end when she was arrested by a joint task force of members of Florida Attorney General Ashley Moody’s Medicaid Fraud Control Unit and the U.S. Marshals.
For six years, one woman stole half a million dollars from Virginia’s Medicaid program via fraudulent reimbursements. While operating United Medical Home Oxygen and Medical Supply, Paulette Jackson charged the state’s Medicaid program up to 78 times her actual cost of oxygen.
In June of this year, two Pennsylvanians pled guilty and were sentenced for welfare fraud on a truly epic scale. For six years, Larita Walls and Tionne Street participated in a conspiracy by which several entities received millions of dollars fraudulently from Pennsylvania’s Medicaid program using bogus documentation and fake medical services.
#3: Seeing Dead People…Then Pretending to Be Them
When federal auditors tracked Illinois’s Medicaid program over two years, they found that, of 94 beneficiaries sampled, 80 were dead. Illinois failed to recoup any of these lost payments. A previous audit had already discovered that, over two years, more than 8,000 Medicaid enrollees in the state were dead. $12.3 million was spent on these individuals after their deaths.
A wealthy couple in Last Vegas claimed to be entrepreneurs. Their business was picking names from obituaries in North Carolina and charging Medicaid for fraudulent services to the recently deceased that were never actually provided. In all, using the ironically named Assured Healthcare Systems as a front, they received $13 million in reimbursement from Medicaid.
#4: Stealing Personal Information
A mother-daughter team in Orange County, California stole almost $200,000 in public housing benefits by using multiple birth certificates and identification cards. When they were finally caught, they had more than $600,000 in their bank accounts.
But youth football coach Matthew Harrell began his criminal career by taking the personal information of young players provided by their families and submitting bills to Medicaid pretending to be their mental health provider. When he expanded to Louisiana, Harrell managed to purchase a list of 13,000 children enrolled on Medicaid with stolen identities to bill more than half a million dollars for fake services that were never provided.
#5: Exploiting Eligibility Loopholes
The worst welfare fraud is fraud that is encouraged by the government itself. The broad-based categorical eligibility loophole in food stamps, or BBCE loophole, is exactly that—state sanctioned fraud—and it purposefully allows millionaires to receive food stamp benefits.
Rob Undersander, the “Minnesota Millionaire,” set out to prove this point. Using the BBCE loophole, he was able to qualify for food stamp benefits by receiving a nominal benefit from Minnesota’s cash welfare program. Minnesota, like most states, abuses this loophole to skip asset test verification for applicants. States that use this loophole allow applicants with any amount of assets, including millionaires like Undersander, to receive benefits despite federal asset limits.
#6: Failing to Report Income to Remain Eligible for Welfare
As tens of thousands of residents of Miami-Dade County remained on waiting lists for public housing benefits, one household continued to receive generous monthly vouchers despite a job that paid more than $70,000 that put the household at twice the maximum income allowed. What income did the household fail to report? A job as a corrections officer at a local prison.
Rachel Dolezal, a former NAACP chapter president who became famous for publicly self-identifying as black despite being white, was charged with welfare fraud in Spokane, Washington. She failed to report income from her memoir in order to collect more than $8,000 in food stamp benefits.
Amanda Clayton won $1 million on a game show called Make Me Rich! but never reported the winnings to the state. She then proceeded to collect food stamp and Medicaid benefits, for which she was ultimately charged and ordered to pay restitution.
How to Stop It:
#1: Restrict ways retailers can use food stamp benefits – This can be done by prohibiting retail owners from redeeming personal food stamp benefits at their own stores—a common problem in fraud cases. Another helpful step would be to freeze food stamp retailer authorization when there are credible fraud allegations against them. This restriction exists for Medicaid, but food stamp retailers can continue their operations until all investigations, even criminal trials, are completely finished.
#2: Make food stamp fraud investigations a state priority – At the federal and state levels of food stamp program oversight, too little money is devoted to fraud detection. States should be allowed to retain 50 percent of intentional program violation collections to help fund additional investigations and properly staff up. States should also be given authorization—authorization that the federal government already has—to not only investigate offending retailers, but to remove them from program participation.
#3: Stop making it so easy – Eligibility errors drive at least 62 percent of improper payments, and many of these errors are from enrollees not providing the correct information. This stems from automatic Medicaid renewals and pre-populated forms making it easy for people to leave out crucial information that would make them ineligible to receive benefits. States should also end hospital presumptive eligibility, wherein a patient just needs to self-report their income and hospitals can claim them as eligible for Medicaid—with no proof. This should be returned to its original purpose—helping children and pregnant women, not everyone who walks into a hospital.
#4: Fraudsters should be locked out from programs – Because of weak reporting requirements, states allow people to receive benefits even after their changes in circumstances render them ineligible to receive them. States should require enrollees to report changes within a strict timeframe to reduce fraud, and lock people out from re-enrollment when they knowingly commit fraud. There should also be more frequent Medicaid eligibility redeterminations. Having to wait one whole year frees up time for fraudsters to receive benefits for which they aren’t eligible and hinders states from protecting their programs.
#5: Close the BBCE loophole – Receiving a brochure shouldn’t be enough to trigger eligibility for food stamps, especially when this leads to people with significant assets joining the program. Closing the BBCE loophole will allow states to reduce fraud and waste, lower their administrative burden, and focus resources on the truly needy.
#6: Mandate data cross-checks – States spend millions of dollars maintaining data relevant to welfare eligibility. Lottery winners, death records, employment and wage records, incarceration records, and electronic benefit transfer (EBT) transaction records are already tracked by most states. Yet, states rarely use this available data comprehensively to ensure eligibility for benefits. States with data cross-checks have been able to save hundreds of millions of dollars in resources for the truly needy.