What is Medicaid waste, fraud and abuse? Depends who you ask

Republican leaders have promised to cut spending by targeting waste, fraud and abuse in Medicaid while sparing beneficiaries, but experts differ on whether they can come anywhere near their goals without harming providers and patients.

House Republicans aim to slash at least $1.5 trillion from the federal budget over 10 years to partially offset the $4.5 trillion cost of extending the tax cuts that President Donald Trump enacted in his first term, which are due to sunset this year. The bulk of that would likely come from Medicaid under the budget resolution the majority GOP House approved on a party-line last month.

Related: Dems run ads against GOP lawmakers over Medicaid cut proposals

The budget resolution orders House committees to write legislation to carry out that plan. The Energy and Commerce Committee, which oversees Medicaid and Medicare, is instructed to cut $880 billion.

Trump and congressional GOP leaders have promised to spare Medicare, prompting Democrats to charge there is no way to find so much money without damaging the health program for low-income people, people with disabilities and older people. Tackling waste and graft simply won't produce big enough numbers, they say. In turn, Republican leaders such as House Speaker Mike Johnson (R-La.) say there is plenty of waste, fraud and abuse to target.

This dispute is political and ideological, but it's also definitional. To beat back Democratic arguments, Republicans are adopting an expansive meaning of "waste, fraud and abuse" that depends on the contention that a large share of Medicaid beneficiaries don't actually qualify for the program — even after states spent 2023 and 2024 purging the rolls — or shouldn't be eligible because they are "able-bodied."

Improper payments

The nonpartisan Congressional Budget Office issued an analysis last Wednesday concluding that, to reach the $880 billion target, the Energy and Commerce Committee would have to target Medicaid or Medicare.

Excluding Medicare, Medicaid accounts for 93% of spending by programs under the committee's authority, according to the CBO. The remainder adds up to $381 billion, most of which is funded through specific fees and not availale for cuts. Just $135 billion of non-Medicaid spending would be applicable to the tax bill, according to the CBO.

“The reality is, the only way Republicans can cut at least $880 billion within the Energy and Commerce Committee’s jurisdiction is by making deep, harmful cuts to Americans’ healthcare," Energy and Commerce Committee ranking member Frank Pallone (D-N.J.) said at a news conference touting the CBO report last Wednesday.

Republicans have a clear reason to hammer home the notion that waste, fraud and abuse in Medicaid are so rampant that they can squeeze close to $1 trillion from the program without affecting providers and enrollees: The public isn't fond of Medicaid cuts.

Just 17% of Americans want Congress to reduce Medicaid funding, according to survey results the health policy research institution KFF published last Friday. Forty percent of respondents said Medicaid funding is at the right level already, while 42% want it increased. Even among self-reported Trump supporters, only 35% support Medicaid cuts, while 43% want to maintain the status quo and 22% want higher Medicaid spending, the poll found.

The waste, fraud and abuse figure that House Republicans cite is $50 billion a year, which they attribute to findings from the Government Accountability Office, a nonpartisan investigative arm of Congress. Stamp that out, and there's nearly two-thirds of the $880 billion, the argument goes.

But experts point to significant issues with that thinking.

First, the $50 billion figure comes from 2023, when Medicaid was still confronting the aftereffects of the COVID-19 pandemic, including record enrollment after Trump signed a law in 2020 allowing enrollees to keep coverage temporarily during the public health emergency even if they no longer qualified.

The estimate for improper payments in 2024 is $31 billion. Eliminating that would net much less than half the goal.

A flaw in the GOP argument about waste, fraud and abuse, said Darbin Wofford, a senior health policy advisor at the centrist Third Way, is that "improper payments" are not the same thing as "waste, fraud and abuse." According to data the Centers for Medicare and Medicaid Services published last year, 79% of improper payments were essentially clerical and bureaucratic errors when states or providers left out information.

If the remaining 21% of improper payments could be eliminated, Republicans are even further short of the goal, and the CBO likely would not assume all such erroneous or fraudulent payments could be ended, Wofford said.

"Targeting waste, fraud and abuse would result in only minor savings, especially considering that the Congressional Budget Office would not be as generous in the savings compared to how Republican leaders describe them," Wofford said. "Assuming they can get to $60 billion from a 100% fraud reduction, they are still incredibly short of their $880 billion goal."

Doing better on fraud might also cost more initially because federal and state agencies would have to build and implement new systems, said Jocelyn Guyer, a senior managing director at Manatt Health who advises clients about Medicaid. This also coincides with the White House's far-reaching campaign to shrink the federal workforce.

"It requires further investment in Medicaid data systems and state Medicaid fraud control units, as well as in oversight and audit staff at CMS, including with the [Health and Human Services Department] Office of the Inspector General," Guyer said. "This leaves me concerned about the cuts in staff at CMS."

Shrinking Medicaid enrollment

Conservative analysts contend improper payments may be much higher than CMS estimates. Brian Blase, president of the Paragon Health Institute and former White House official during Trump's first term, co-authored a report that concludes as much as one-quarter of Medicaid spending is improper payments, or five times what CMS reported.

Much of that, Blase said, is because too many ineligible people have Medicaid, based on the assumption that because some people have more than one form of health coverage, that must mean people on Medicaid do, too.

"The extremely high improper payments show that states lack incentives to check eligibility," Blase said. "There are simply a lot of people on the program who don't meet the eligibility rules, many of whom have had and continue to have other coverage. So the government is sending money to insurers for people who have other coverage and will not use the program."

Effect on states, providers

Some of the Republican proposals don't target waste, fraud and abuse, per se, but seek to limit or ban practices states employ to maximize federal Medicaid funding and reduce their own expenditures. Some of these policies have met resistance from Republican and Democratic administrations alike over the years.

Provider taxes, for example, have the effect of increasing the federal share of Medicaid spending. Many states also direct insurers and others to make specific payments for items such as nutrition, which raises costs that get passed back to Uncle Sam.

"They tax hospitals, and then they claim extra reimbursement from the federal government for the cost of the taxes they imposed on hospitals," said Chris Pope, a senior fellow in health policy at the conservative Manhattan Institute. "They force managed care providers to provide all kinds of extraneous services, then bill the federal government for the additional cost of the managed care. And they do this in 100 different ways."

Addressing these kinds of budgetary gimmicks could move Republicans about $200 billion closer to their $880 billion goal, according to House GOP estimates.

However sound or unsound the arguments are against those types of state policies, forbidding them will result in a weaker Medicaid program because states lack the resources to replace the funding, Wofford said. "These reductions to state Medicaid programs would put immense pressure on state budgets and mean decreases in enrollment and payments to providers," he said.

"If they go too far in those, you'll see rural hospitals close," said Brian Frazee, president of Delaware Health Association. "My counterparts in states that have a lot of rural hospitals or critical access hospitals are really concerned about the clawback on Medicaid provider taxes," he said.

"Any cuts to any of these programs are going to have an impact on the people that they support, whether it's a direct impact to their benefits or it's just less investments in things that help keep the community more healthy," Frazee said.