Pipeline to Fraud: How Obama-Era Loopholes Undermine Medicaid Program Integrity
Key Findings
- Medicaid enrollment and spending have soared, and so has waste, fraud, and abuse.
- The Obama administration created two pipelines that allow states to enroll Medicaid applicants without independent state-level eligibility verification.
- States can enroll individuals in Medicaid based on food stamp eligibility, importing errors from food stamps directly into Medicaid.
- States can enroll individuals in Medicaid through the ObamaCare exchange without verifying their eligibility.
- Both pipelines can be closed through administrative guidance, but only Congress can guarantee they stay closed.
Overview
Enrollment and spending on Medicaid have exploded. In 2000, 35 million Americans were enrolled in Medicaid, carrying a cost of $206 billion.1 By 2024, enrollment had grown to 100 million, and total spending had skyrocketed to $964 billion.2 Over this period, the number of able-bodied adults on Medicaid has more than quadrupled, growing from seven million to 34 million.3 Nearly 70 percent of all Medicaid cost growth since 2000 is attributable to able-bodied adults enrolled through ObamaCare expansion, transforming a program designed for the truly needy into a general welfare program.4
ObamaCare expansion drove much of that growth, but it does not account for all of it. The Obama administration created two pipelines that allow states to bypass the verification systems designed to keep ineligible individuals off Medicaid.
The first pipeline runs through the food stamp program. Obama-era guidance allows states to import food stamp eligibility determinations directly into Medicaid, substituting food stamp eligibility for an independent verification process.5
The second pipeline runs through the ObamaCare exchange, where states can forgo manual Medicaid eligibility determinations by accepting the eligibility determinations recommended by the exchange, recommendations that may rest on unverified or incomplete information.6
Together, these two pipelines have allowed ineligible individuals onto the Medicaid rolls, draining resources from the truly needy.7-8 To restore the Medicaid program to its original intent, Congress must close both pipelines.
States are enrolling individuals in Medicaid based on food stamp eligibility
In 2013, the Centers for Medicare & Medicaid Services (CMS) issued guidance directing states to enroll individuals in Medicaid based solely on their food stamp eligibility, bypassing the independent income and eligibility verification that program enrollment requires.9 CMS acknowledged at the time that some individuals enrolled under this method would be “income-ineligible for Medicaid,” yet instructed states to facilitate their enrollment anyway, without an additional Medicaid application.10
The Obama administration framed the guidance as a temporary administrative measure to manage the enrollment surge accompanying ObamaCare expansion, and states were required to define the timeframe during which they intended to use it, with the authority for this strategy set to expire after 2015.11 But the Obama administration extended this authority, making it a permanent option for states.12
Food stamps and Medicaid operate under different eligibility rules. The two programs have different income thresholds, count income differently, and categorize households differently.13-14 An individual who qualifies for food stamps does not automatically qualify for Medicaid, yet the Obama-era guidance treats food stamp enrollment as a sufficient equivalent for determining Medicaid eligibility. This created a direct pipeline through which eligibility errors travel unchecked from one program into the other.
The food stamp program has a payment error rate of nearly 11 percent, and that figure is drastically understated.15 The program excludes errors that fall below certain thresholds from its official count.16 A Government Accountability Office (GAO) review found that nearly 40 percent of cases had payment errors, but many were excluded from the official payment error rate.17 Making matters worse, the U.S. Department of Agriculture has previously informed Congress that states were “altering what information and data they reported” and “going back and hiding the errors they found.”18
Importing eligibility determinations from a program with that track record does not improve Medicaid program integrity—it makes it worse. The eligibility errors that originate in the food stamp program travel directly into Medicaid, where they compound an already dire program integrity crisis. Today, more than one in five Medicaid dollars is spent improperly, costing taxpayers an estimated $1.1 trillion over the last decade.19 More than 80 percent of these improper payments are the result of eligibility errors.20
CMS guidance eliminated the verification step most likely to catch these discrepancies before they became costly. When the Obama administration chose to make that authority permanent, it left the pipeline open and running.
States are enrolling individuals in Medicaid through the ObamaCare exchange without verifying their eligibility
When the ObamaCare exchange went live, CMS gave states two options for handling Medicaid referrals from the marketplace.21 Assessment states treat exchange eligibility recommendations as a referral and conduct independent determinations before enrollment.22 Determination states accept the exchange’s eligibility recommendations as final and enroll the individual automatically, with no independent verification of income or other eligibility factors.23 Determination states choose to skip independent eligibility verification entirely and rely on a system with documented verification failures and high fraud risk.24
The exchange’s eligibility determination process is not an adequate replacement for independent state verification. GAO tested the ObamaCare exchange for vulnerabilities by submitting applications from fictitious identities and found that the exchange approved nearly all of them, even when applicants did not provide the eligibility documentation the exchange requested.25 In 2025, 90 percent of those fictitious applicants remained actively covered, costing taxpayers more than $10,000 in subsidies per month.26
GAO further identified more than 29,000 Social Security numbers that were used for multiple enrollees, including one Social Security number that had been used across 125 plans, and more than 58,000 Social Security numbers of deceased individuals that were used by active enrollees.27 CMS has not updated its fraud risk assessment since 2018, leaving the door for fraud open for nearly a decade.28
Louisiana’s experience as a determination state shows what these verification failures cost taxpayers. Louisiana operated as a determination state until auditors found an “ongoing unacceptable error rate in decisions” by the exchange, prompting the state to shift to assessment status in late 2015.29 However, by mid-2016 the state reversed course and once again opted for determination status after the passage of ObamaCare expansion in the state.30 A 2018 audit found that nearly 20,000 expansion enrollees had wages above the income eligibility limit.31 Among the audited individuals, 10 percent had been determined to be eligible by the exchange despite wage records showing they did not qualify when they applied.32 Auditors projected that taxpayers paid between $61.6 million and $85.5 million for ineligible enrollees.33
The audit concluded that Louisiana’s decision to revert to determination status was a primary driver of these improper payments, highlighting that the exchange lacks access to state wage data and makes eligibility determinations without a clear understanding of an applicant’s income.34 If Louisiana hadn’t accepted the ObamaCare exchange’s determinations, none of those applicants would have been determined eligible.35
Fortunately, Louisiana lawmakers have finally moved to shut the door they reopened in 2016. In 2025, the legislature unanimously passed Senate Bill 130, which prohibits the Louisiana Department of Health from accepting Medicaid eligibility determinations from the ObamaCare exchange and reverts the state back to assessment status.36
Congress has the authority to close both pipelines
The food stamp pipeline was opened through administrative guidance, and it can be closed in the same way. CMS can, and should, rescind the authorization that allowed states to substitute food stamp eligibility for independent Medicaid verification. CMS should then issue guidance making clear that the temporary authority granted in 2013 has expired. Going forward, states should be required to conduct independent verification for every Medicaid applicant, regardless of food stamp enrollment status. The Obama administration opened this pipeline through a policy memo, and the Trump administration can close it in the same manner.
The exchange pipeline is also within CMS’s authority to close without congressional action. CMS sets the conditions under which states participate in the exchange recommendation process, and nothing in federal law requires states to operate as determination states. CMS should issue guidance requiring all states to operate as assessment states, conducting independent verification of income and eligibility before enrolling any individual recommended by the exchange. The documented verification failures within the exchange—fabricated identities receiving coverage, tens of thousands of duplicate Social Security number enrollments, and hundreds of thousands of unauthorized plan changes—make clear that exchange recommendations cannot be substituted for independent state-level verification.37 Requiring assessment-state status across the board closes this pipeline at the source.
While administrative guidance can temporarily close these pipelines, that alone is not a permanent solution. Congress should require independent state-level Medicaid verification for all applicants and prohibit states from accepting exchange recommendations in place of state eligibility checks. Without codification, a future administration can reopen either pipeline through the same administrative process that the Obama administration used to create them.
The Bottom Line:
Congress must close both pipelines and require states to verify eligibility for every Medicaid applicant.
Closing both pipelines does more than reduce waste, fraud, and abuse—it restores Medicaid to the program it was designed to be. Every dollar spent on ineligible enrollees is a dollar that cannot reach the truly needy. These pipelines undermine Medicaid’s original purpose, funneling resources toward ineligible enrollees. Closing these pipelines through administrative guidance is a necessary first step. Codifying these reforms through Congress makes the solution permanent.
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