Why States Aren’t Really Interested in Reducing Medicaid Fraud

money bills

The following is an article from Jeff Leston of Castlestone LLC .  Castlestone provides fraud prevention solutions to governments and others.


Since the passage of the Affordable Care Act, Medicaid expansion has been literally force-fed to states.

Federal monies dished out

Some, like California, Illinois, and Louisiana, took second helpings by enrolling ineligible beneficiaries.  Only a few have declined the free lunch.  And it has been a free lunch with the federal taxpayer funding 100% of new beneficiaries from 2012-2018.  It’s hard to pass up the buffet,  particularly when it’s paid for by somebody else.

FMAP percentage increased

During the same period, the Federal Matching Percentage, or FMAP, which is the amount of Medicaid dollars paid for by federal taxes has risen from the designed rate of 50% to a current 63%. There are a few states who receive more than 70% of their Medicaid funds from federal taxpayers.

Michigan gets 2 federal dollars for every 1 the state kicks in

But let’s take a state close to the mean, Michigan, who receives 64% of its Medicare funds from other taxpayers.  For every dollar the Michigan Legislature appropriates for Medicaid, federal taxpayers kick in $2.00.  And as long as Michigan keeps spending, they can tap the federal treasury for $2.00 for every $1.00 they put up.  There is no cap and there is little federal oversight.  In 2018 Senator Ron Johnson from Michigan chaired a committee which reported that oversight of Medicaid spending was lacking.

On the flip side, if Michigan found Medicaid fraud, the Wolverine State would have to repay the federal treasury $2.00 for every $1.00 they received.

That’s certainly not a prescription to enhance economic activity in the State.

Doesn’t want to lose federal funds

This is noted on page three of a report of the Michigan House Fiscal Agency (available below) that:

Additionally, for each $1.00 in State savings from reductions in the State Medicaid Program, the State foregoes nearly $2.00 in Federal funds.”

Translated, that means if they demonstrate fiscal integrity and do the right thing, the flow of federal dollars to Michigan’s Medicaid program may slow.

That’s not why politicians get elected.

Lack of Medicaid fraud recovery in Michigan

In FY 2018, Michigan recovered only $3 million from criminal fraud out of a $17 billion program budget.  The Medicaid Fraud Control Unit mandated to investigate and prosecute Medicaid fraud, cost $5 million to operate in that same fiscal year.  The other anti-fraud resources, such as a Medicaid Inspector General’s office or the Program Integrity office, cost even more.

Michigan is certainly not alone.

Disincentive to find Medicaid fraud

As it stands today, there is a disincentive for states to aggressively pursue Medicaid fraud.

As long as:

1) the money comes from somewhere else,

2) spending is matched 2:1 and often more in an open-ended system with minimal oversight, and

3) fulfilling fiduciary responsibility means money flowing out of the State, we will see no end in sight for the billions lost to fraud.

These points need to be addressed.


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