Fraud infests federal healthcare programs. The main reason: no one is spending their own money. This leaves federal taxpayers on the hook for corrupt and incompetent management. Medicaid and Obamacare are structured to move vast sums of money to insurers and healthcare providers based on eligibility determinations that are weakly verified and poorly enforced, creating opportunities for abuse. When enrollment itself becomes the measure of success, and when federal dollars flow automatically with little scrutiny, fraud becomes a feature, not a bug.
Improper eligibility determinations are not merely bureaucratic mistakes; they generate enormous profits for insurers and enrollment intermediaries. Not surprisingly, these entities lobby aggressively for policies that weaken verification, expand automatic enrollment, and minimize consequences when eligibility rules are ignored. Meanwhile, many activists and much of the media treat rising enrollment as an unquestioned good, even when evidence shows that a significant portion of that enrollment is improper or fictitious and enrollees receive no healthcare services.
Recent scandals make the problem concrete. In Minnesota, a concerned citizen and social media journalist have helped bring to light massive fraud in publicly funded child-care and social service programs. This work comes on the heels of the U.S. Attorney for Minnesota warning that upwards of $9 billion has been lost to fraud in recent years. Their coverage shows the two struggling to locate children these programs were supposedly serving. Similar dynamics appear in Medicaid-funded autism services, where providers paid parents to have their children diagnosed with autism to maximize billing. These are not sophisticated schemes, yet they persisted for years with billions lost to fraud because of fatal flaws in the design of the programs and corrupt and incompetent government oversight.
The same pattern appears in Obamacare and Medicaid on a national scale. In the Obamacare exchanges, the root cause of the fraud is massive subsidies. The subsidies are based on estimated income, so unscrupulous brokers and enrollment intermediaries coach applicants on the income to provide to maximize subsidies. Some of these enrollment scams involve brokers and agents promoting cash or gift cards to sign up. Some brokers admitted to making $6,000 a day in commissions from signing people up — many of whom were unaware they were enrolling in health insurance.
Massive improper enrollment led to a surge of enrollees who never used their plan, reaching 35 percent of all enrollees in 2024 — and 40 percent of fully subsidized enrollees. Insurers and enrollment intermediaries have gotten rich at the expense of the federal taxpayer and on behalf of millions of phantom enrollees.
Medicaid contains even worse structural problems. Improper payments in Medicaid exceed $100 billion a year. The primary reason that there is so much fraud in Minnesota and other states is that the federal government underwrites most of it. Overall, more than 70 percent of Medicaid costs are paid by federal taxpayers.
Obamacare expanded Medicaid to working-age, able-bodied adults with the federal government sending states seven times more funding for every $1 a state spends on expansion enrollees compared to traditional enrollees like children, pregnant women, and people with disabilities. The expansion economics give states large incentives to misclassify enrollees as eligible under the expansion and to set high payment rates to insurers and providers for expansion enrollees.
Most of the cost associated with Minnesota’s rampant fraud is being borne by federal taxpayers in extraordinarily high payment rates that Minnesota sends insurers to cover Medicaid expansion enrollees. Those rates are already 50 percent higher than the national average, and Minnesota is projecting to raise them 28 percent this year, with federal taxpayers covering almost the entire cost.
STOP CALLING EVERYTHING FASCISM
The key takeaway: when federal health programs reward enrollment volume and tolerate weak verification, large-scale fraud is inevitable. Taxpayers are financing systems where eligibility is loosely enforced, benefits are fully subsidized, and accountability is treated as optional. Restoring integrity will require real eligibility verification, an end to automatic enrollment, and modest beneficiary contributions. These are basic safeguards that are no longer standard features of Obamacare or Medicaid.
Brian Blase is the founder and president of the Paragon Health Institute. He served as special assistant for economic policy to President Trump from 2017-2019.
