Medicaid Fraud, Waste & Abuse:
What’s Real, What’s Not, and Why It Matters
Medicaid covers over 83 million Americans, making it the largest health coverage program in the U.S. With that scale comes scrutiny and suspicion. People often assume widespread fraud is draining the system. But what’s really going on?
How Much Is Actually Lost?
While the Congressional Budget Office admits there’s “no reliable estimate” of total Medicaid fraud, we do have something to go on: improper payment rates from CMS.
- In FY2024, the improper payment rate was 5.1%, or $31.1 billion.
- During the pandemic, that rate spiked above 20%, hitting 21.7% in 2021, largely due to suspended eligibility checks.
- But fraud isn't the whole story.
Not All Errors Are Fraud
Most improper payments are admin errors, not criminal schemes.
- In 2024, 79.1% of improper payments came from missing or incomplete documentation.
- Only 15.6% were linked to ineligible services or people.
- Just 2% involved unregistered providers, and 3.3% were other monetary issues.
Translation: The vast majority of errors are clerical, not fraud.
Who’s Really Committing Medicaid Fraud?
Spoiler: It’s not low-income beneficiaries.
- 98% of fraud convictions involve providers, not patients.
- These include fake billing, kickbacks, or unnecessary services, and especially in labs, home health, and durable medical equipment.
- When patients are involved, they’re often being used in provider-led scams.
Enforcement: Are We Doing Anything About It?
Yes, and it’s working.
Medicaid Fraud Control Units (MFCUs) are the state-based watchdogs funded in part by the federal government.
- In FY2023, MFCUs secured 1,143 convictions and $1.2 billion in recoveries.
- In FY2024, recoveries hit $1.4 billion, with a $3.46 return for every $1 spent.
So How Much Fraud Is There?
If we generously assume that 20.9% of improper payments are fraud (which is likely high), that’s $6.5 billion—still just a sliver of Medicaid’s $656B+ annual budget.
Most estimates peg actual fraud closer to $1–3 billion/year, based on confirmed recoveries.
Final Thought
Yes, Medicaid has leakage, but fraud is smaller than many assume. Most losses are due to outdated systems and paperwork lapses. The real opportunity? Using data and AI to modernize eligibility checks and flag provider scams earlier.
We’ll explore public perceptions of fraud next, and what smart states like New York are doing to get ahead of the problem.
