Broad-Based Categorical Eligibility in Food Stamps is Fraud by Design and States Should Ban It
Key Findings
- Food stamp enrollment and spending have skyrocketed.
- Broad-based categorical eligibility (BBCE) for food stamps has been vulnerable to fraud and abuse since its inception.
- An estimated 5.9 million food stamp recipients enrolled through BBCE do not meet eligibility requirements.
- The One, Big, Beautiful Bill now requires states to manage their payment error rates or pay for a portion of the food stamp benefit costs.
- States should ban BBCE to lower their payment error rates and avoid cost increases.
Overview
The food stamp program was created decades ago to help the truly needy attain a nutritious and adequate diet.1 Federal law aims to reserve food stamps and other welfare programs for the truly needy, using a combination of income and asset tests.2
But a federal loophole abused by states allows even millionaires to be deemed eligible for food stamps.3 An estimated 5.9 million individuals are enrolled in food stamps through the broad-based categorical eligibility (BBCE) loophole despite not meeting federal eligibility requirements.4-11
BBCE has contributed to the massive expansion in the food stamp program over the last two decades.12 In 2000, there were roughly 17 million enrollees, costing taxpayers $17 billion.13 But by 2023, program enrollment had spiked to 42 million, and costs skyrocketed to more than $113 billion.14 Since states have historically not had to pay for food stamp costs outside of administrative costs, they largely stood by and watched as improper payment rates rose to double digits.15
Fortunately, Congress passed and President Trump signed the One, Big, Beautiful Bill, which now requires states with high error rates to pay for a portion of their food stamp benefit costs.16 This makes it more important than ever for states to crack down on fraud and abuse in food stamps.
To preserve resources for the truly needy and lower their payment error rates, states should ban the use of BBCE in determining food stamp eligibility.
The name of the BBCE game is fraud and abuse
Federal law aims to preserve food stamps for the truly needy by limiting eligibility for people with significant financial resources.17 Federal law sets income eligibility and requires states to check the assets of those applying for food stamps. But states have used federal loopholes to essentially eliminate these requirements and expand food stamp eligibility to millions of individuals who do not otherwise qualify.
A Clinton-era rule, expanded under President Obama, allows for categorical eligibility, where an individual can become eligible for food stamps based on their eligibility for another welfare program like Temporary Assistance for Needy Families (TANF).18
The justification for this was that it would reduce administrative costs since an enrollee’s eligibility would have already been checked in the other program.19 But administrative costs have not decreased in states that use BBCE, and administrative costs did not spike in states that have closed these asset loopholes.20 In fact, administrative costs per enrollee decreased in these latter states.21
Instead, states have gamed the new eligibility category. They use TANF money received from the federal government to print and offer brochures or pamphlets, or make a toll-free hotline available to call.22 They then deem these offerings a “benefit,” which makes the recipients eligible for food stamps.23 Individuals do not even have to receive these “benefits” in order to be categorically eligible for food stamps, they can qualify as long as they are authorized to receive them.24 This game is now played by 43 states and the District of Columbia.25
Through BBCE, even millionaires are recipients of food stamps, some intentionally to prove a point.26-27
An estimated 5.9 million individuals are enrolled in food stamps through BBCE despite not meeting federal eligibility criteria.28 These individuals should not be receiving food stamps and would not have been able to enroll if not for BBCE.29 An estimated 20 percent of otherwise ineligible BBCE enrollees hold six figures in assets.30
BBCE also increases the risk of fraud and payment errors. Households eligible under BBCE are nearly three times as likely to have payment errors as other households.31 Caseworkers also report BBCE reduces their ability to check for inconsistencies, diminishing their level of verification.32
Now, for the first time ever, states may have to cover some of their food stamp benefit costs, providing further incentive to ban the use of BBCE.
States may now have to pay for a portion of food stamp benefit costs
Growth in the food stamp program has been largely unchecked for decades. In 2000, there were an average of only 17 million enrollees, costing taxpayers $17 billion.33 By 2023, program enrollment had reached 42 million, and costs had skyrocketed to more than $113 billion.34
Since states have not been responsible for food stamp costs outside of administrative costs, they have largely stood by and watched this growth as improper payment rates have reached double digits.35
But under the One, Big, Beautiful Bill, states will now have skin in the game when it comes to food stamp benefit costs.36 For the first time, states will have to pay for the food stamp program outside of administrative costs.
Importantly, states will now be on the hook to pay for food stamp benefit costs based on their payment error rates.37 If a state’s error rate is below six percent, the federal government will continue to make all benefit payments.38 But the state’s share of payments increases until it reaches a 15 percent share when a state’s payment error rate reaches 10 percent.39 The One, Big, Beautiful Bill also increases the states’ share of administrative costs from 50 percent to 75 percent.40 Administrative costs make up a much smaller portion of total food stamp spending, as benefits account for the vast majority—95 percent—of federal food stamp spending.41
With high error rates, states could be on the hook for millions in food stamp payments annually if they do nothing.42 State lawmakers can no longer turn a blind eye to program abuse because federal taxpayers are paying for it. They owe it to their taxpayers to look for ways to reduce their payment error rates and the state’s cost burden.
States should ban BBCE to reduce their error rates and save taxpayer money
To preserve resources for the truly needy and lower their payment error rates, states should ban BBCE. History has shown that this will not increase administrative costs.43 But banning BBCE will drive down costs by helping to ensure that only the truly needy, not millionaires, will be enrolled in food stamps.
Banning BBCE will also reduce the burden on state taxpayers by both lowering the overall cost of the food stamp program and removing an eligibility category with high payment error rates, which may lead to states reducing their share of benefit costs. In fact, states that use BBCE have error rates that are one-third higher than states that do not, which is enough to place them in a higher cost share threshold.44
Bringing their error rates below six percent would mean states would continue to not have to pay for the cost of food stamp benefits.45 States should be doing everything possible to reduce their error rates, including ending the use of BBCE, as BBCE households have payment error rates nearly three times as high as other households.46
Closing the BBCE loophole would save taxpayers nearly $110 billion.47-51 State taxpayers would accrue $10 billion of those savings, while the remainder would go to federal taxpayers.52-53
With states now sharing in food stamp costs, and these potential savings, it behooves them to stop gaming the system and ban the use of BBCE.
The Bottom Line: To better serve the truly needy and protect taxpayer money, states should ban the use of broad-based categorical eligibility in the food stamp program.
States will now be on the hook for paying for some of their food stamp benefit costs if they have high payment error rates. A major source of program costs and elevated error rates is staring them in the face with BBCE.
Many states have abused this loophole for years. But now, facing the reality of being financial partners with the federal government, they should close the BBCE loophole. This would ensure that food stamps remain available for the truly needy without breaking the back of state taxpayers or heightening funding crunches for other state programs.
