What We Know About Medicaid Fraud

In his role leading the initiative known as the Department of Government Efficiency (DOGE), Elon Musk has suggested that cuts must be made to Medicaid. According to Musk, the program produces billions of dollars in waste each year, with fraud being a major contributor. Here, I take a look at potential Medicaid fraud and learn if it rises to the level suggested by Musk.

The issue

Created as part of President Lyndon B. Johnson's "Great Society," Medicaid has roughly 79 million Americans who depend on it to cover their medical costs. For example, the program pays for 60% of nursing home care and 40% of births.

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Claiming that Medicaid is rife with fraud, DOGE says it's eyeing deep cuts to the joint federal and state program. On Feb. 25, the House of Representatives passed a budget resolution calling for $880 billion in federal spending cuts over the next decade, with the lion's share of cuts expected to come from Medicaid.

Image source: Getty Images.

Identifying fraud

Musk said on Fox Business Network that "entitlement" programs like Medicaid, Medicare, and Social Security should have somewhere between $500 billion and $700 billion cut from their programs, suggesting that's the amount of waste they generate.

Although Musk's estimates are at odds with reports from the Centers for Medicare & Medicaid Services (CMS), the House of Representatives is counting on significant cuts to fund the president's proposed tax cuts.

When CMS reported "improper" Medicaid payments of $31.1 billion in 2024, it became a little easier to understand why the program might be under the microscope. CMS says improper payments can result from circumstances including items or services with no documentation or insufficient documentation, or lack of a record of a required verification of eligibility.

A deeper dive indicates that all may not be as it appears. If the administration hopes to save an impressive amount of money by making cuts to Medicaid, it may be surprised by how little can be saved without reducing coverage for those who rely on the program.

Breakdown of "improper" payments

Each year, CMS reports how many improper payments were made. While $31.1 billion in improper payments were made in 2024, improper does not always mean fraud was involved. Here's a breakdown of why $31.1 billion in Medicaid payments were categorized as improper.

1. Insufficient documentation

About 74% of improper payments were due to insufficient documentation. The term "insufficient documentation" covers a wide range of issues, including:

• The reviewer couldn't determine whether services were provided.
• The reviewer couldn't determine whether services were provided at the amount billed.
• The reviewer couldn't determine whether the services were medically necessary.
• A specific document was missing from the claim.
• A physician's signature was missing or illegible.
• A form was not entirely completed.
• A physician did not add sufficient detail to the claim.
• A service code was incorrect.

According to CMS, these improper payments typically involve situations where a state or provider missed an administrative step. They do not necessarily indicate fraud. Of the $31.1 billion in claims deemed improper, $23.4 billion were due to insufficient documentation.

2. Not medically necessary

About 15.6% of payments were classified as improper because the service provided was not considered necessary or the beneficiary was ineligible for that service.

3. A provider was not enrolled in the program

The final 5% of claims was deemed improper because the medical provider was not enrolled in Medicaid or for other reasons.

While nearly 95% of Medicaid payments made in 2024 appear legitimate, approximately 5.09% raised a question. That's not to say that 5.09% isn't important. Medicaid fraud -- when it exists -- is a serious matter, taking money from the taxpayers who fund it. It's also a serious issue for those who commit it, with the government identifying and prosecuting the fraudsters.

Unless new evidence presents itself, what the public knows right now is that losses to Medicaid fraud don't appear to be large enough to make a dent in the administration's hoped-for $880 million in spending cuts.

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