Fraud in Medicaid is no longer a problem limited to one state. Recent investigations across the United States have revealed that billions of dollars have been improperly taken from state welfare programs, with Medicaid suffering the largest losses. Taxpayers are now facing the consequences of years of weak oversight, poor enforcement, and political tolerance that allowed waste, fraud, and abuse to grow unchecked.
Over the next decade, improper Medicaid spending could cost taxpayers an estimated $2 trillion. While Minnesota has become a high-profile example due to large-scale fraud cases, similar problems exist nationwide. States have consistently failed to control misuse of funds, relying on the federal government to absorb the financial impact rather than fixing the system themselves.
According to federal findings from 2020, more than a quarter of Medicaid spending at the time—about $120 billion—was improper. The majority of those errors came from eligibility failures, meaning benefits were paid to people who did not qualify. These payments diverted limited resources away from the vulnerable individuals Medicaid was designed to help. Years later, there is little evidence the situation has improved significantly, and it is likely that a substantial portion of Medicaid funds is still being misused.
Much of the problem expanded during the Affordable Care Act era, when Medicaid enrollment grew rapidly to include tens of millions of able-bodied adults. This group is statistically more likely to experience eligibility changes due to income or employment. However, federal administrations repeatedly failed to enforce strict eligibility checks. States, knowing the federal government would cover its share of the costs, had little incentive to crack down on abuse.
Federal law requires states to repay Washington’s share of Medicaid costs if their improper payment rate exceeds 3 percent. Yet most states far exceed this threshold. They have avoided financial penalties largely through “good-faith waivers,” which allow states to promise reform without delivering real results. These waivers effectively removed accountability from the system.
That is now changing. Under a new law signed in July, these waivers will be phased out. Beginning in 2030, states will be responsible for covering the federal share of improper payments above the 3 percent limit. While the delayed timeline gives states time to adjust, it also makes clear that accountability is no longer optional.
The potential financial impact is severe. Ohio, which once recorded an improper payment rate of nearly 45 percent, could face penalties approaching $10 billion—about 15 percent of its state budget. Illinois could owe more than $6 billion, while states with lower error rates would still face annual costs in the billions. Nationwide, penalties could total $100 billion starting in 2030 if reforms are not implemented.
To avoid this outcome, states must act quickly. Key steps include ending self-reported income and residency claims, which invite abuse, and conducting more frequent eligibility reviews, particularly for able-bodied adults. States should also cross-check Medicaid records with wage data, tax filings, address changes, prison records, and death registries to identify ineligible recipients.
Delaying action will only make the problem worse. States that wait for political shifts or hope for federal intervention risk facing massive budget shortfalls with little time to respond. The choice is clear: either reform Medicaid now or pay a steep price later.
