MICHAEL GREIBROK: States are about to face a major reckoning on Medicaid fraud

It’s not just Minnesota.

The past few weeks have made it clear that scammers are stealing billions of dollars from state welfare programs, mostly Medicaid. It also appears that Democratic politicians turned a blind eye to the robbery for their own political gain. But politicians in nearly every state have allowed waste, fraud, and abuse to spread like wildfire in Medicaid, leaving taxpayers facing an estimated $2 trillion in improper spending over the next decade alone. Fortunately, President Donald Trump and congressional Republicans have given states a reason to clean up the mess and spare taxpayers the pain.

One new paperI show how Democrats turned Medicaid into one of the most fraudulent programs in America and how Republicans are fixing it. While Medicaid has long been plagued by inappropriate spending, Democrats compounded this crisis during the Obama years.

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ObamaCare added tens of millions of healthy adults to the program, but that population is much more likely to be ineligible.

The Obama administration refused to rigorously check compliance, and the Biden administration has adopted the same policy, deliberately concealing an explosion in waste, fraud and abuse. States, meanwhile, have refused to oversee their Medicaid programs, confident that the federal government will look the other way and cover the costs.

The first Trump administration found that 27.4 percent of federal Medicaid spending in 2020 was improper, or about $120 billion in that period. Management also found that four out of every five improper payments were due to compliance errors. This money flowed to people who should not have been on Medicaid, thus diverting money and care away from the intended recipients. Five years later, it’s likely that at least one in five Medicaid dollars will still be misspent.

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Call it what it is: an attack on taxpayers. This is also a clear violation of federal law. States are legally required to repay Washington’s share of Medicaid payments to the federal government if their improper payment rates are above 3%, a far cry from 2020’s 27.4% rate.

The Trump administration is once again conducting eligibility checks, but even without this information, it’s certain that every state has already exceeded the 3% threshold. The only reason they avoided a budget explosion was because they received so-called “good faith exemptions” from Washington. Essentially, states promised to fight fraud and abuse even if they had no intention of doing so.

Republicans asked for time for this filibuster in the law that President Trump signed on July 4th. They effectively eliminated good-faith exemptions and told states they would have to cover federal shares of improper payments above 3 percent starting in 2030. While five years may seem like an eternity, it’s an acknowledgment that states have a mountain to climb to reduce error rates to low single digits.

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Consider Ohio. In 2019, the improper payment rate was approximately 45%; The Buckeye State has the worst record in the nation for waste, fraud and abuse. Based on the latest spending levels, Ohio would be at risk of $9.7 billion, roughly 15% of the current state budget. Illinois will pay $6.4 billion at 35.4%; That’s a tough ask, given the state’s notorious fiscal woes. Even states with lower rates of improper payments, such as Pennsylvania, Michigan, and Missouri, would still face annual costs of more than $1 or $2 billion.

Without reform, I estimate states will pay a total of $100 billion in fines starting in 2030. Their only hope of avoiding this financial distress is to immediately begin rooting out waste, fraud, and abuse. Lawmakers need to focus on some key reforms in state legislative sessions that begin in January.

First, do not allow Medicaid recipients to declare their income, address, and other personal information. Using the honor system invites abuse.

Second, review recipient eligibility at least twice a year for healthy adults and annually for everyone else, eliminating unsuitable individuals early and often.

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Third, cross-check Medicaid data with easily accessible information such as wage, employment, and tax records; returned mail and address changes; out-of-state food stamp transactions; and prison and death records. These basic good government measures can quickly identify people who are unfairly taking taxpayer money.

Waiting to crack down on Medicaid fraud is the stupidest thing states can do. We also hope that Democrats get their wish and Republicans successfully repeal their Medicaid reforms. That won’t happen while Trump is president, and states may be disappointed if they wait to see the outcome of the 2028 election. At this point, they would face an even steeper hill with barely a year left to recover.

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There’s no escaping the fact that Democrats are gutting Medicaid in Minnesota and everywhere else, or that Republicans are giving states emergency authority to finally root out waste, fraud, and abuse.

Michael Greibrok is a Senior Research Fellow at the Government Accountability Foundation..