Anyone who has suffered a fracture can easily recall the pain – so intense that it demands medication. However, easing the pain alone neither heals the fracture nor keeps the pain from returning later. The pain is merely a symptom – however acute and intolerable—of the broken bone. It is much the same with Medicaid: fraud is only a symptom of a broken system. Ranging from allegations to indictments, four Medicaid-related fraud stories made local and national news over just three days—from May 20 to May 22. American taxpayers are the “victims” of theft, Vice President JD Vance noted earlier this month as he revealed new federal anti-fraud initiatives.
The chairman of the presidential “Task Force to Eliminate Fraud,” Vance warned that the administration would no longer tolerate states’ failure to “take Medicaid fraud more seriously.” It will thus defer $1.3 billion in Medicaid reimbursement to California, to encourage the state “to get serious” about fraud prevention. California’s Medicaid is indeed notoriously susceptible to fraud—let alone waste and abuse. Just weeks earlier, a California man pleaded guilty to submitting nearly $270 million in bogus claims to Medi-Cal.
Poor fraud prevention is, of course, not unique to the Golden State. Two months earlier, in Democrat-led Minnesota, two Pennsylvania “fraud tourists” pleaded guilty to stealing about $3.5 million in Medicaid money. That same month, Medicaid fraud cases in Republican-led Missouri and Ohio involved $1.46 million and $775,000, respectively. Hundreds of thousands, often millions, sometimes tens or even hundreds of millions of dollars, can be lost to fraudsters in each case.
Nearly a trillion dollars, however, is now spent on a program that underdelivers disastrously even where fraud is absent: the very program Vance assures Americans the administration wants to “protect.”
This year, Medicaid costs are projected to exceed $1.06 trillion and, by 2033, $1.6 trillion, a 50 percent increase. Yet in 2014, the year the Affordable Care Act’s Medicaid expansion provisions began to be implemented by the states, the program cost under half a trillion dollars; then, it expanded to cover low-income, able-bodied adults without dependent children. States, which, before 2014, provided health coverage for their Medicaid-eligible residents at roughly half the cost, can now offer coverage to many more constituents at virtually no cost to themselves, contributing $1 for every $9 in federal aid. The incentive for states to police the provision of services is limited at best.
To the contrary, states face – and have acted upon – an incentive to secure the highest possible “return” on their Medicaid dollars. Provider taxes are one kind of financial maneuver that states have devised to enlarge their federal portions of Medicaid financing. States tax healthcare providers count the revenue toward their nonfederal share of Medicaid spending to secure additional federal matching funds, and then route much of the combined money back to providers. The federal share of Medicaid has swelled relative to that of the states because of overspending permitted under Medicaid’s structure. Add thereto the problem of lax federal oversight.
Officially, over the past ten years, $543 billion in Medicaid spending accounted for improper payments. However, for more than one reason, eligibility checks were excluded from improper-payment measurements for much of the decade. In the few years during which eligibility checks were audited in the course of improper-payment measurements, the rates spiked dramatically: in some years, roughly a quarter of all Medicaid expenditures were improper. Some estimates suggest that once eligibility checks are factored in, Medicaid improper payments could be more than twice the officially reported amount.
“Meanwhile, hospitals and insurance providers are incentivized to lobby for program expansions, higher reimbursement rates, and relaxed eligibility rules in pursuit of higher revenue,” Dominic Lett at the Cato Institute explains. “[A]n unholy alliance between state politicians and providers” is thus formed to obtain more federal dollars.
Medicaid is a deeply fractured program – administered by states, increasingly paid for by the federal government, permeated with waste, and undermined by states and providers pursuing their own interests. It is governed by prices set bureaucratically and by eligibility rules loosely defined and enforced.
From such a system, fraud results as organically as pain results from a fracture. It is symptomatic of a Medicaid system in which per-enrollee spending is projected to exceed $12,500 this year—roughly $4,000 more than private health insurance spending per insured person. Targeting fraud apart from reforms that would mend Medicaid’s underlying structure is a remedy akin to a pain reliever—necessary in the short term, but inadequate to restore the program to proper function.
