New analysis estimates $1.1T in Medicaid improper payments

Medicaid improper payments are much higher than the federal government reports, according to a new analysis from the Paragon Health Institute.

The conservative think tank released the analysis earlier this week, estimating about $1.1 trillion in Medicaid improper payments over the last decade. The estimate is approximately double the $543 billion CMS reported from its own audits.

Researchers from the Paragon Health Institute reached the $1.1 trillion value by including eligibility checks in their analysis, which they say CMS has "largely ignored" despite being "the biggest source of errors."

Under the Obama and Biden administrations, CMS did not include reviews of state eligibility determinations in their Payment Error Rate Measurement (PERM) audits, which have measured improper payments in Medicaid and CHIP since 2008. Improper payments are reimbursements from the government that do not meet statutory, regulatory or administrative requirements of the programs.

CMS did not include state eligibility determinations at times since establishing PERM audits. The Obama administration first halted eligibility reviews from 20152018. More recently, the Biden administration stopped eligibility reviews from 2021-2024 because of the COVID-19 pandemic.

However, eligibility is a major problem for Medicaid, especially after the Affordable Care Act, the think tank explained. The ACA allowed states to expand Medicaid to more individuals, many of which qualified for higher reimbursements from the government compared to traditional Medicaid populations.

Higher rates for newly eligible populations created "an incentive for states to improperly classify traditional enrollees, as well as ineligible applicants, as expansion enrollees," the analysis stated.

Additionally, hospitals have been able to enroll people in Medicaid under presumptive eligibility rules. Under these rules, hospitals can enroll patients based on income and household size to receive temporary Medicaid coverage pending a review. A 2018 report, however, found that about 70% of people deemed eligible by hospitals were eventually found to be ineligible or did not have their information verified.

The Paragon Health Institute also found that the official improper payment rate from CMS was significantly higher during the years when PERM included eligibility assessments as part of their official improper payment rates.

Without eligibility checks, the report said CMS is missing a substantial portion of Medicaid improper payments.

"Improper payments violate the Medicaid program’s purpose of providing efficient and effective care to those eligible by costing taxpayers far more than necessary to provide health coverage to low-income Americans," the report stated.

The report comes on the heels of President Trump's efforts to reduce federal spending on Medicaid by targeting fraud in the program. Republicans have also indicated that they can cut potentially hundreds of billions in Medicaid spending by reining in fraud, waste and abuse, like improper payments.

Another recent report on Medicaid improper payments from the left-leaning Center on Budget and Policy Priorities countered that most of the improper payments are made for "eligible health services for people who were eligible for Medicaid."

CBPP's report said the issue is proper documentation for the payments, which is typically lacking. This means improper payments are not considered fraud, but a result of procedural errors.

Common eligibility errors leading to Medicaid improper payments, according to the report, include insufficient documentation in a beneficiary's case file, incorrect coding, incorrect federal match and incorrect health insurance program assignment.

CMS reported that the improper payment rate in 2024 was 5.09%, down from 8.58% in 2023. The improper payment rate, specifically for payments related to eligibility determinations, was 3.31%, down from 5.95% in 2023.

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016.