Congress and the Trump Administration Are Cracking Down on Fraud by Design in Medicaid

Overview

The Medicaid program was originally designed to provide a safety net for the truly needy, including children, the elderly, and individuals with disabilities.¹ The Affordable Care Act, commonly referred to as ObamaCare, transformed the program, extending eligibility to a new class of able-bodied adults.² This led to massive cost and enrollment overruns. Beyond overwhelming Medicaid rolls with able-bodied adults, the Obama administration made matters worse by prohibiting states from doing due diligence and encouraging fraud by design. The Biden administration later supercharged these efforts.

Prior to 2012, states were required to check Medicaid enrollees’ eligibility at least once every 12 months, and states had the option to review eligibility more frequently. But in 2012, the Obama administration took drastic efforts to maximize enrollment of able-bodied adults. The administration finalized a rule, with no statutory basis, preventing states from performing redeterminations more than once a year on one group of enrollees—individuals whose income is determined based on modified adjusted gross income.^3-4 The rule also required states to provide prepopulated forms, adopt passive eligibility redetermination procedures, and accept enrollee information without verification.⁵

Singing from the same song sheet, the Biden administration finalized a rule in 2024 prohibiting states from conducting redeterminations for all eligibility groups more than once a year, requiring a lengthy 90-day “reconsideration” period to keep ineligible enrollees’ cases open longer, and removing options for states to implement their own program integrity efforts.^6-7 Fortunately, this rule, estimated to cost $224 billion, was rolled back by the One, Big, Beautiful Bill.⁸

This landmark legislation passed by Congress, and signed into law by President Trump, reprioritizes program integrity in Medicaid. The new law requires states to redetermine eligibility at least once every six months for able-bodied adults enrolled through Medicaid expansion.⁹ To fully restore program integrity, the Centers for Medicare & Medicaid Services (CMS) should undo the Obama-era handcuffs on states, allowing states to take back control of their Medicaid programs through more frequent eligibility checks for all Medicaid enrollees. 

Medicaid enrollment is off the charts, with able-bodied adults swelling the program.

Since the passage of ObamaCare, able-bodied adults have flooded Medicaid rolls. Enrollment of able-bodied adults has skyrocketed, increasing from roughly seven million in 2000 to a staggering 34 million in 2024.¹⁰ Nearly 85 percent of the enrollment growth over the last 10 years is due to able-bodied adults.¹¹

Explosive enrollment has led to excessive spending. In 2000, annual Medicaid spending was just over $200 billion.^12-13 By 2023, all told, program costs rose to nearly $919 billion.¹⁴ Federal taxpayers have borne most of this spending, covering nearly 80 percent of the program’s increase over the last decade.¹⁵ Medicaid spending is being diverted to able-bodied adults, with federal taxpayers now spending more on able-bodied adults than they do on individuals with disabilities, the elderly, or low-income children.¹⁶

As Medicaid enrollment has grown, so has waste, fraud, and abuse. Thankfully, Congress and the Trump administration have taken steps to curb fraud and restore program integrity through the One, Big, Beautiful Bill.

Program growth is stoking an increase in waste, fraud, and abuse.

More than one in every five dollars spent on the Medicaid program is improper.¹⁷ Improper payments were on track to exceed $2 trillion over the next decade.¹⁸ Fortunately, the One, Big, Beautiful Bill brings much-needed reforms that will curb this waste, ensuring taxpayer resources go to the truly needy.

State and federal audits have revealed millions of ineligible enrollees on Medicaid. In California, one federal audit found that the state’s Medicaid agency made payments on behalf of roughly four million ineligible or potentially ineligible enrollees.¹⁹ More than half of the state’s enrollees were ineligible or potentially ineligible, while only 45 percent of Medicaid payments went to eligible enrollees.²⁰ In an audit reviewing eligibility determinations in four states, auditors found millions of ineligible and potentially ineligible enrollees on Medicaid rolls.²¹ An audit of Ohio’s Medicaid program found that an alarming 62 percent of the state’s expansion population was ineligible or potentially ineligible.²² The financial impact of these errors, located in a single state during a single audit period, exceeded $800 million.²³ In Colorado, auditors found nearly 100,000 Medicaid enrollees were ineligible or potentially ineligible.²⁴

Duplicative enrollment, when federal taxpayers pay more than once for the same person, is also pervasive in Medicaid. Recent CMS analysis found 2.8 million individuals were enrolled in Medicaid or CHIP in multiple states or were simultaneously enrolled in multiple government health plans.²⁵ In a review of all but five states, auditors found that each state reviewed had individuals concurrently enrolled in multiple states.²⁶ In some cases, the same Social Security number was linked to as many as seven open Medicaid cases at the same time.²⁷ More frequent eligibility checks would help curb this abuse.

Deceased enrollees are also still receiving benefits. Recent audits from Indiana, Kansas, Michigan, New York, and Virginia reveal tens of millions of dollars in payments to deceased Medicaid enrollees.^28-32 Lax provisions that allow reasonable opportunity periods have also allowed illegal aliens to enroll in Medicaid, despite federal prohibitions.³³ Finally, states have miscalculated the federal share of Medicaid, keeping more federal dollars than they should. For example, in an audit of 13 states, 12 were found to have inaccurately calculated the federal share of Medicaid collections.³⁴ In another example, auditors found that New York incorrectly claimed the enhanced federal reimbursement for individuals.³⁵

Ineligible Medicaid enrollment is often the result of a failure of states to properly verify factors of income, household composition, citizenship, incarceration status, and death records. Prior administrations have eroded program integrity intentionally to maximize enrollment. States must perform more frequent eligibility checks for enrollees and cross-check available state and federal data sources to preserve program integrity.

Prior administrations abandoned program integrity, relaxed verification standards, and hid improper payments. These efforts to maximize enrollment of able-bodied adults in Medicaid siphon resources from the truly needy. 

Periodic redeterminations are necessary as individuals’ situations often change. Marriages, deaths, employment and income changes, among other life events, do not occur on an annual schedule. States should want to ensure those receiving taxpayer-funded benefits are actually eligible to receive them. Medicaid now accounts for roughly 30 percent of state budgets nationwide, crowding out other state priorities.³⁶

For decades, states were required to redetermine Medicaid eligibility at least once every 12 months. But the Obama administration unilaterally made that existing minimum requirement for eligibility redeterminations the new maximum for one group of Medicaid enrollees, individuals whose income is determined based on modified adjusted gross income.³⁷ This led to skyrocketing improper rates. Between 2013 and 2021, the amount of improper federal Medicaid and CHIP payments caused by eligibility errors increased roughly tenfold.³⁸ Eligibility error rates were 75 percent higher among those subject to redeterminations only once per year than the error rate for those not subject to the rule’s limitations.³⁹ The Biden administration supercharged these efforts, applying the failing eligibility rules to all Medicaid enrollees.

The Biden administration’s “streamlining” rule mirrored the Obama-era rule and prevented more frequent eligibility reviews for all remaining Medicaid enrollees, further driving up eligibility error rates and enrollment.⁴⁰ And just as the Obama-era rule included additional, harmful provisions—it required states to provide prepopulated forms and accept reported information without further verification—the Biden administration’s rule prohibited states from using information that would enhance program integrity. For example, the Biden rule required states to ignore returned mail that indicated a household’s address change.⁴¹ Worse, the rule required “reconsideration” periods of up to 90 days, forcing states to keep cases open and to use outdated and ineligible data.⁴² The rule also extended the length of time ineligible enrollees had to report changes affecting their eligibility.⁴³ These efforts to maximize enrollment came at the expense of the truly needy and the taxpayer.

This is fraud by design. The states engage in this, too, placing the burden on the individual. Many states accept applicants’ attestation for income, household size, and household composition.⁴⁴ Individuals are legally required to report changes that may affect their eligibility, but few do. In Louisiana, for example, more than 16,000 ineligible individuals were allowed to enroll in Medicaid because the state did not verify self-attested information regarding household composition and income.⁴⁵ In New Jersey, auditors found thousands of enrollees with unreported, high incomes, including some earning millions per year.⁴⁶ These examples are especially problematic given that 69 percent of Medicaid cases recently renewed were done through this passive or “ex parte” basis.⁴⁷

Federal bureaucrats also artificially lower error rates. The Obama administration suspended eligibility error reviews in 2013, just as the wave of able-bodied adults filled Medicaid rolls. Eligibility errors notably make up most of the improper payments in Medicaid.⁴⁸ The Biden administration similarly sought to maximize enrollment during the pandemic by requiring states to keep individuals enrolled continuously, no matter their eligibility status.⁴⁹ President Biden’s White House publicly touted low improper payment rates in Medicaid, but in reality, the error rates declined only artificially.⁵⁰ Payments that would have previously been categorized as improper were not counted as improper under the relaxed requirements.⁵¹

More frequent eligibility checks, as required in the One, Big, Beautiful Bill, will help curb these problems, directing Medicaid funds to the truly needy rather than to waste, fraud, and abuse.

Congress and the Trump administration are cracking down on fraud by design in Medicaid.

The landmark legislation passed by Congress, and signed into law by President Trump, addressed many of these issues.⁵² The One, Big, Beautiful Bill rescinded the Biden administration’s streamlining rule and requires states to conduct more frequent eligibility determinations in Medicaid for expansion enrollees.^53-54 This will ensure Medicaid serves the truly needy, and not those who are ineligible, deceased, or enrolled in multiple states.

Because of the new law, states must redetermine eligibility for Medicaid expansion enrollees at least once every six months. This program integrity measure will decrease costs. When bureaucrats relaxed program integrity, changing from a six-month to a 12-month redetermination period, states reported that costs increased by lengthening the time individuals remained on Medicaid.⁵⁵ Failing to check eligibility ultimately facilitates the crowding out of resources for the truly needy as states end up spending funds on ineligible individuals.

The One, Big, Beautiful Bill restores flexibility, gives states the ability to more precisely capture changes and ensures accuracy in state Medicaid programs. States should immediately implement more frequent eligibility checks and take additional steps to ensure program integrity.

The Bottom Line: CMS should allow states to conduct more frequent eligibility checks for all Medicaid enrollees.

Medicaid enrollment and costs have skyrocketed. As the program has grown, so have waste, fraud, and abuse. Every dollar spent improperly is a dollar that could have gone to the truly needy. The One, Big, Beautiful Bill made significant progress toward restoring program integrity in Medicaid by reversing the problematic Biden-era streamlining rule and requiring states to redetermine eligibility more frequently for the expansion population.

States should have the flexibility to redetermine eligibility more frequently for all Medicaid enrollees. To ensure that the whole program receives similar program integrity measures, CMS should undo the Obama-era restrictions that restrict more frequent eligibility checks for all Medicaid participants. States should verify eligibility of able-bodied adults before enrollment and at semiannual redeterminations. States should also use available data sources to cross-check eligibility. By cross-checking wage and tax records, states can ensure their program dollars are going to those who are eligible. Moreover, when state Medicaid agencies receive information indicating a change in circumstances, they should redetermine eligibility.

The One, Big, Beautiful Bill brings historic and much-needed reform to Medicaid. More frequent eligibility redeterminations will curb the unsustainable improper spending, which was on track to exceed $1 trillion over the next decade before the new law was signed. CMS should extend the same program integrity reforms to all of Medicaid by undoing the Obama-era rule that stands between states and sweeping program integrity.

DOWNLOAD PAPER [PDF]