Medicaid and Welfare Are Wasteful and Fraud-Prone. It’s Time to Fix Them

A recent Wall Street Journal report exposed alarming waste in Medicaid, revealing the shocking scale of error in a welfare program that, in some cases, has issued simultaneous payments to up to five insurers for the same person, diverting taxpayer dollars to insurers while the neediest languish. This is just one symptom of a public welfare system — spanning Medicaid, food stamps (the Supplemental Nutrition Assistance Program, or SNAP), and beyond — that is riddled with fraud, waste, and abuse and demands urgent reform. Improper payments in these programs cost tens of billions of dollars annually. These aren’t mere errors. States are profiting from them.

As a former secretary of the Department of Health and Human Services and Medicaid director in two states during the 2000s and early 2010s, I saw this firsthand. My teams uncovered recipients who were enrolled in multiple states because of absent data-sharing. We urged HHS and the Food and Nutrition Service (FNS) to create a national database, but our pleas were ignored. Medicaid and SNAP are lifelines for millions, yet their inefficiencies siphon resources from the vulnerable. That’s why I’ve called for a major downsizing, restructuring, and consolidation of HHS and of portions of the Department of Agriculture, the Department of Housing and Urban Development, and other welfare agencies, in my National Review piece “A Path to Independence.”

Medicaid, which costs nearly $900 billion annually, serves almost 80 million people, and has doubled in size since 2000, is at the core of the crisis. Improper payments, which account for one in every four dollars spent, total $1.1 trillion over the past decade, according to a recent paper by the Paragon Health Institute and the Economic Policy Innovation Center. Most, such as the cases reported by the Journal, stem from eligibility errors but include payments to deceased recipients.

A big problem is that states lack the incentive to act. Under the Affordable Care Act’s expansion, states receive federal funds that cover at least 90 percent of costs per recipient. States make money from enrolling in the expanded ACA people who would be eligible under previous criteria that correspond to a lower payment rate. Provider taxes and intergovernmental transfers — schemes that states use to maximize federal Medicaid money while minimizing states’ costs — further boost revenue over accountability. Medicaid costs have nearly doubled in a decade, with little gain for the neediest, and spending is projected to hit $1.5 trillion by 2034: a 141 percent rise from pre-pandemic levels.

SNAP and other welfare programs include significant waste too. SNAP, which has 41 million enrollees and runs at $125 billion yearly, loses $25 billion to $36 billion annually to fraud, as analysts note, with criminals exploiting outdated electronic benefit transfer (EBT) cards. An Atlanta retailer, for example, skimmed $10 million from SNAP by exploiting recipients, while in Mississippi, the federal government penalized the state for more than $100 million in misspent Temporary Assistance for Needy Families funds, $5 million of which was used to build a state sports facility.

States that try to fix eligibility and payment loopholes face barriers to reform. The Obama administration introduced self-attestation for eligibility and limited reviews to no more than once yearly for many, while Biden’s 2023 Centers for Medicare and Medicaid Services rule expanded this honor system to all populations, tying states’ hands by delaying ineligibility findings for at least 90 days and locking in higher improper payments. States could invest in data-sharing, but why bother when federal dollars flow to boost enrollment at the expense of eligibility accuracy?

Regardless of barriers like this, however, incentives still drive states’ inaction. Governors and state leaders have told me that they see Medicaid and SNAP as stimulus and economic multipliers — federal dollars pumped into local economies, of which waste is a common feature. With federal funds covering nearly all expansion costs and no penalties for errors, states profit from lax oversight.

At a minimum, the Trump administration should mandate a national HHS database to stop Medicaid double-dipping and payments on behalf of the dead. Automated IRS and Social Security data would streamline eligibility checks. The administration should also require states to report improper payments more regularly, with financial penalties for high error rates.

Paragon has largely focused on two major Medicaid reforms that would incentivize states to get more value from the program. For the able-bodied working-age population eligible under the ACA expansion, Congress should end the discrimination against the most vulnerable and phase down the 90 percent federal match rate. No policy would reduce improper payments more. Congress should also take steps to reduce the rampant state money-laundering schemes in Medicaid that result in a less accountable, less efficient program, as outlined in a recent Paragon report. For SNAP, federal investment should expedite chip-enabled EBT cards to ensure payment accuracy and proper verification. Furthermore, consolidating HHS, FNS, and other welfare agencies would cut red tape and refocus on the vulnerable instead of the bureaucracy.

Without meaningful reform, more than $100 billion will continue to be lost to improper payments every year, and the vulnerable will lose out. The Trump administration and Congress have a genuine opportunity to reform welfare programs, and they must not let it pass them by.