How Wasteful Is Medicaid?

[This post is another in a series on problems with Medicaid. For more details, please consult my recent book from the Independent Institute, Priceless: Curing the Healthcare Crisis.]

Fraud and abuse have plagued Medicaid since its inception. In 1997, the GAO estimated that fraud and abuse may be as high as 10 percent of Medicaid spending.[1]

A yearlong investigation of New York Medicaid by the New York Times found massive provider fraud. For example, a dentist in New York’s Medicaid program claimed to have performed nearly 1,000 procedures in a single day. All told, she and a colleague billed New York Medicaid $5.4 million.[2]

Common fraud problems among Medicaid providers include charging for medical, transportation, and home healthcare services that were never delivered; charging for a more expensive service or good; using ambulance transportation when it is unnecessary; and charging twice for the same treatment. Because other people are paying for their healthcare, Medicaid recipients have little reason to detect and deter fraud.

Most fraud is committed by physicians and other providers, rather than patients, but providers often turn a blind eye to unscrupulous patients abusing or defrauding the system. For instance, the Times reports that a Brooklyn doctor prescribed more than $11 million worth of a synthetic growth hormone used to treat AIDS patients over a three-year period. Investigators say these patients were part of an elaborate scheme to obtain a drug popular with bodybuilders on the black market.[3]

Furthermore, matching funds make fraud control less enticing for states. For example, with a 50 percent match rate, if a state spends $1 to reduce fraudulent Medicaid spending by $2, the state loses $1 of the matching federal funding and its net gain is zero.

Matching-fund finance also affects state incentives to verify the eligibility of enrollees. In response to strong evidence that states were adding illegal aliens to their Medicaid rolls, the 2006 federal Deficit Reduction Act required states to demand proof of citizenship as a condition for Medicaid enrollment. In 2007, the number of nondisabled adults and children enrolled in Medicaid declined for the first time since 1996.

In my previous post I argued that Medicaid typically delivers substandard care. It should now be apparent that it also often weakens the financial health of taxpayers in ways that none of its champions would condone.


  1. “Medicaid Fraud and Abuse: Stronger Action Needed to Remove Excluded Providers From Federal Health Programs,” Government Accountability Office, 1997,
  2. Clifford J. Levy and Michael Luo, “New York Medicaid Fraud May Reach Into Billions,” ­New­ York Times, July 18, 2005.
  3. Clifford J. Levy and Michael Luo, “New York Medicaid Fraud May Reach Into Billions.”

[Cross-posted at Psychology Today]

John C. Goodman is a Research Fellow at the Independent Institute, President of the Goodman Institute for Public Policy Research, and author of the Independent books Priceless, and A Better Choice.
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