States are getting serious about Medicaid fraud

Medicaid is not a small entitlement program. Total spending on Medicaid for 2023, the last complete year of data, was $894 billion with the federal government spending nearly 70 percent of that amount. The number of eligible Americans was unknown when Medicaid began in 1965, so Congress did not set a budget. First year spending totaled $1 billion, which is a reflection of the limited size of the initial program.

Medicaid is administered by the states with oversight and regulatory requirements set by the federal government. It’s estimated that up to 20 percent of Medicaid spending falls under the categories of waste, fraud, and abuse. The U.S. Government Accountability Office has repeatedly flagged Medicaid as being susceptible to improper payments. 

Recently, Washington state and Idaho reported success in aggressively pursuing fraud in their respective Medicaid programs.

From Washington State’s Attorney General’s Office:

“A King County jury delivered a guilty verdict on all 11 counts in a trial against a man who ran a fraudulent scheme to use stolen identities of real nurses to send unqualified imposter nurses into long-term healthcare facilities.” The AG report goes on to say: “Since October 2018, (the state’s) Medicaid Fraud & Abuse Division has charged 127 criminal cases and obtained 104 criminal convictions. Additionally, MFA recovered approximately $81 million on behalf of the Medicaid program through its civil prosecutions.”

Idaho’s Attorney General recently attended a national meeting on Medicaid fraud and announced a recovery of over $900,000 in Medicaid fraud for the fiscal year 2025. He went on to say: “Of that total, $361,577 came through civil cases pursued in partnership with the U.S. Attorney’s Office for the District of Idaho.”

It is encouraging that states are actually pursuing waste, fraud, and abuse in their Medicaid programs. A bit of history is needed here to understand the incentives and disincentives built into Medicaid. The program began in 1965 as a health insurance entitlement for the most vulnerable people in the United States.

Originally, it was to be funded jointly by federal and state taxpayers with a 50/50 ratio. Rather than having the federal government pay for the entire entitlement, Congress assumed that involving the states would limit expansion of Medicaid, simply because state legislators would not want to increase state taxes to pay for it.

This led to the main incentive for state officials. When they paid a dollar for state education or transportation, they received a dollar’s worth of education and transportation. With Medicaid, however, for every dollar they spent, they received a matching dollar from D.C. Obamacare massively compounded the incentive by allowing low-income, able-bodied 18-to 64-year-olds into Medicaid with a 90/10 federal/state match.

Hence, Medicaid enrollment and spending have exploded. Even though the federal government now pays 70 percent of the total cost, for most states, the entitlement now ranks as one of their top three budget items. Many state officials are finally realizing the costly Medicaid incentive trap and are looking for ways to control unnecessary spending.

Of course, at the end of the day, federal taxpayers and state taxpayers are the same people. As states crack down on waste, fraud, and abuse in their Medicaid programs, all taxpayers will benefit.

For meaningful reform to the program, however, eligibility should revert to the original goal of providing health insurance for the most vulnerable in America. Of course, returning to the original 50/50 funding ratio would also be a strong incentive for states to be responsible stewards of the Medicaid program.