How Federal Lawmakers Can Combat Waste, Fraud, and Abuse in Medicaid

Overview

The Medicaid program was originally designed to provide a safety net for truly needy Americans, such as low-income children, the elderly, pregnant women, and individuals with disabilities.¹ However, the Medicaid program has veered off course in recent decades.

Since the passage of ObamaCare, the Medicaid rolls have been flooded with able-bodied adults. In total, nearly 85 percent of the enrollment increase over the last 10 years is directly attributable to able-bodied adults.²

As the Medicaid program has grown, so have the issues stemming from waste, fraud, and abuse. Taxpayers are footing the bill for tens of billions of dollars annually in improper payments alone, the vast majority of which are due to eligibility errors.³ Unfortunately, much of this improper spending is fraud by design: welfare policies intentionally designed by bureaucrats to maximize enrollment at all costs.⁴

Without reform, the situation is only going to get worse. The Biden administration’s 2024 Medicaid “streamlining” rule will only exacerbate this problem, as the federal government has limited the ability of states to strengthen the integrity of their Medicaid programs.⁵

Explosive enrollment and skyrocketing spending

In 2013—the year prior to ObamaCare expansion—there were roughly 60 million Medicaid enrollees nationwide.⁶ But by 2023, total enrollment had soared to a record-high 100 million.⁷ While enrollment has declined somewhat due to the unwinding of pandemic-related restrictions on removing ineligible enrollees, there are still 10 million more Medicaid enrollees today than there were before the pandemic.⁸

Explosive enrollment has led to skyrocketing spending. All told, federal and state taxpayers footed the bill for nearly $919 billion in Medicaid costs in 2023 alone—roughly double the cost from a decade earlier.^9-11 Federal taxpayers have borne the brunt of this skyrocketing spending, with federal dollars covering nearly 80 percent of the increase over the last 10 years.^12-13

Unfortunately, this unprecedented level of growth in the Medicaid program has been met with a sharp increase in waste, fraud, and abuse.

Waste, fraud, and abuse are rampant in the Medicaid program

As the Medicaid program has continued to balloon in size, the long-running program integrity issues that have plagued the program have become more prevalent. More than one in every five dollars spent on the Medicaid program is improper.¹⁴ More than 80 percent of these improper payments are caused by eligibility errors, meaning individuals enter the program despite being ineligible or remain on the program long after becoming ineligible.¹⁵ Even worse, the Medicaid program is now on track to surpass $2 trillion in improper payments over the next decade alone.^16-21

State and federal audits have revealed these problems and more. For example, federal auditors found 1.2 million ineligible enrollees on Medicaid in California, and another 3.2 million potentially ineligible enrollees.^22-23 In Ohio, auditors determined that 62 percent of the state’s expansion population was ineligible or potentially ineligible.²⁴ New York experienced similar results, as auditors concluded that more than one million Medicaid enrollees were either ineligible or potentially ineligible.^25-26

Audits performed in other states have flagged hundreds of thousands of ineligible and potentially ineligible enrollees.^27-30 In a four-state review performed by the Office of the Inspector General, auditors estimated that roughly one-third of those states’ combined 17.5 million Medicaid enrollees were ineligible or potentially ineligible.³¹

Audits have also identified tens of thousands of enrollees who were enrolled more than once in the same state—with some individuals having as many as seven open Medicaid cases at one time.³² Auditors also found hundreds of thousands of individuals who were enrolled in multiple states.^33-41 A federal review of 47 states’ Medicaid programs found every single reviewed state had enrollees who were also on other states’ programs at the same time.⁴²

In many cases, duplicate enrollment may result from identity fraud by illegal aliens or others. In Arkansas, more than 20,000 enrollees were reported to have “high-risk identities,” including some with stolen or fraudulent Social Security numbers.⁴³ Similarly, in New Jersey, auditors discovered more than 18,000 enrollees with fake or duplicative Social Security numbers.⁴⁴

Making matters worse, auditors have uncovered hundreds of millions of dollars in Medicaid funding spent on deceased individuals, including individuals who had died as early as 1981.^45-61 In some cases, audits identified millions of dollars spent on enrollees who had moved out of state, or never lived in the state at all.^62-63

Bureaucrats created fraud by design

Unfortunately, much of this improper spending is fraud by design: welfare policies intentionally designed by bureaucrats to maximize enrollment at all costs.⁶⁴

For decades, federal regulations required states to “redetermine the eligibility of Medicaid recipients … at least every 12 months.”^65-69 This was the minimum floor for how frequently states could check eligibility, but states could “use shorter intervals at [their] discretion.”⁷⁰ But in 2012, federal bureaucrats finalized a rule that prohibited states from performing redeterminations for individuals whose eligibility is based on Modified Adjusted Gross Income (MAGI)—the non-disabled and non-elderly categories—more frequently than “once every 12 months,” turning the previous minimum frequency into a new maximum frequency.⁷¹ The 2012 regulations also required states to provide prepopulated forms, adopt passive eligibility redetermination procedures, and accept reported information without further verification, among other changes.⁷²

These changes led to widespread eligibility errors, as the groups whose eligibility could only be redetermined once per year had eligibility error rates roughly 75 percent higher than the error rate for groups not subject to those limitations.⁷³

State bureaucrats have also began engaging in fraud by design. Many states now accept applicants’ attestation for a variety of information, including income, household size, household composition, and more.⁷⁴ All states accept self-attestation for household composition despite having access to tax return information and other relevant sources, 45 states accept self-attestation of residency, and at least 15 states accept self-attestation of income to some degree.⁷⁵

Once accepting this information, states may not verify it until months later and sometimes not at all. A Louisiana audit, for example, found tens of thousands of ineligible individuals were allowed to enroll in the program because the state did not verify self-attested information on household size, composition, or certain types of income.⁷⁶ New Jersey auditors identified thousands of enrollees with unreported six-figure incomes, including some earning as much as $4.2 million per year.⁷⁷

Although individuals are legally required to report changes in their circumstances that may affect eligibility, few do. An Illinois audit of the state’s passive redetermination processes discovered that more than 93 percent of all eligibility errors resulted from enrollees reporting incorrect information or failing to report changes in their income, household composition, and more.⁷⁸ New Jersey auditors identified a number of cases in which individuals did not report changes as legally required, including one individual who had wages of nearly $250,000—nearly 15 times the eligibility threshold.⁷⁹ This is particularly worrisome, given that 69 percent of Medicaid cases recently renewed were done through this passive or “ex parte” basis, and federal regulations require states to redetermine eligibility through this process first.^80-81 Federal regulations also prohibit states from performing routine eligibility checks more frequently than once per year.⁸²

To make matters worse, state and federal bureaucrats have designed other welfare expansions through “presumptive” eligibility determinations—a process through which Medicaid allows hospitals to make temporary eligibility determinations before eligibility is verified by state agencies.⁸³ In a 2019 audit, the U.S. Department of Health and Human Services (HHS) estimated that roughly 43 percent of sampled spending on presumptively eligible enrollees was improper.⁸⁴ Data from state Medicaid agencies reveals that such improper payments could be even higher, with just 30 percent of individuals that hospitals determine “presumptively eligible” ultimately determined eligible for Medicaid by the state.⁸⁵ Under federal regulations, states have no way to recoup their share of this improper spending.⁸⁶

Bureaucrats have also created an on-ramp to federal welfare programs for illegal aliens, despite statutory restrictions. Under federal regulations, states must enroll individuals in Medicaid for a “reasonable opportunity period” of at least 90 days—but often longer—while it attempts to verify satisfactory immigration status.⁸⁷ This has allowed illegal aliens to enroll in the program, despite clear federal prohibitions, and remain on the program for months or even years at a time while states ostensibly attempt to verify their status after enrollment—a process that states report has taken more than 5,000 days in some cases.⁸⁸

This Medicaid on-ramp was supercharged under the Biden administration, with the number of illegal aliens enrolled in the program through this loophole skyrocketing by 500 percent—even before the Biden administration finalized new regulations to block states from limiting its use.⁸⁹

In 2024, the Biden administration also finalized regulations to prohibit states from conducting more frequent eligibility determinations, require lengthy “reconsideration” periods that will keep ineligible enrollees’ cases open longer, remove statutory options states exercise to protect program integrity, and triple the length of time ineligible enrollees receive to report changes in circumstances that impact their eligibility.⁹⁰ The Congressional Budget Office estimates that this rule will cost $224 billion over the next 10 years.⁹¹

Bureaucrats used gimmicks to hide improper payments

Although eligibility errors have historically accounted for the vast majority of payments, the Obama administration suspended reviews of eligibility errors in 2014—just as states began enrolling millions of newly-eligible able-bodied adults.^92-94 Although the Trump administration restarted these eligibility reviews in 2019, they were largely suspended again by the Biden administration.⁹⁵ Bureaucrats were able to hide roughly half of federal improper payments—which totaled an estimated $1.1 trillion over the last decade—through these actions.⁹⁶

In 2024, the White House celebrated that it had “improv[ed] the integrity of government programs” by “lowering improper payments” to the “lowest government-wide rate in more than a decade.”⁹⁷ The Biden administration claimed that it had reduced Medicaid’s improper payment rate by “more than 75 percent” since 2021.⁹⁸

But the decline was not due to actually improving program integrity. As the Government Accountability Office (GAO) explained, the lower reported error rate was due to “flexibilities granted to states during the COVID-19 public health emergency.”⁹⁹ As GAO detailed, federal rules allowed states to keep enrollees on the program during the public health emergency even after becoming ineligible, meaning that “payments that would have previously been determined to be improper would not be improper under the relaxed requirements.”¹⁰⁰

In short, bureaucrats artificially lowered the Medicaid program’s improper payment rate, as payments that would normally be considered improper were exempt from review.¹⁰¹

Sadly, this is just the tip of the iceberg. Despite the vigilance shown by state and federal auditors, the true extent of the program integrity issues contaminating the Medicaid program may never be known. But Congress can help address these problems by stopping bureaucrats’ fraud by design.

More frequent eligibility checks would save taxpayers $282 billion

There was no statutory basis authorizing the Obama administration to restrict how frequently states can check Medicaid eligibility for most enrollees in 2012, nor for the Biden administration to supersize those regulations and apply them across the rest of the program more than a decade later. Indeed, federal law explicitly categorizes spending on ineligible enrollees as “erroneous excess payments” and reduces federal Medicaid funding in states where such erroneous payments exceed three percent, though these penalties may be waived by HHS.¹⁰²

Congress should enforce the statutory limits on erroneous excess payments, require states to conduct redeterminations at least once every six months for able-bodied enrollees and at least once per year for disabled or elderly enrollees in accordance with that objective, and rescind other restrictions that make it more difficult for states to adequately verify eligibility.

These changes would save federal taxpayers at least $282 billion over the 2025-2034 budget window.¹⁰³

Repealing the Biden administration’s 2024 “Medicaid streamlining” rule would save an additional $164 billion over the next decade.¹⁰⁴

The Bottom Line: Federal lawmakers should require states to conduct more frequent eligibility determinations in Medicaid to restore integrity to the program. 

Medicaid enrollment and costs have exploded in recent years. Unfortunately, as the Medicaid program has grown, so have the issues stemming from waste, fraud, and abuse. More than one in every five dollars spent on the Medicaid program is improper.¹⁰⁵ Worse yet, the Medicaid program is on track to surpass $2 trillion in improper payments over the next decade alone.¹⁰⁶ The Biden administration’s Medicaid streamlining rule will only make matters worse.

To restore integrity to the Medicaid program, Congress should repeal this rule and require states to conduct more frequent eligibility determinations in Medicaid. This would help ensure that taxpayer resources are going to the truly needy.

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