The welfare fraud in Minnesota seems like a never-ending story. We learn that scammers have set up multiple programs intended to help low-income families, including Medicaid, food assistance, housing assistance and child care programs. Based on what has been discovered so far, the people who perpetrated these schemes may have stolen more than $9 billion.
But while Minnesota’s Social Security fraud is particularly brutal and systemic, it is not unique to that state. That’s because the basic design of most U.S. welfare programs makes them highly susceptible to fraud.
For example, Medicaid has been on the U.S. Government Accountability Office’s (GAO) list of federal programs at “high risk” for fraud, waste and abuse for years. GAO finds the program lacks sufficient federal oversight. According to estimates, there were more than $31 billion in incorrect Medicaid payments by 2024.
That’s especially concerning because Medicaid is the government’s largest means-tested welfare program, costing federal and state taxpayers about $900 billion annually. Not surprisingly, Medicaid was also the source of most of the money stolen in Minnesota.
MINNESOTA HOUSE SPEAKER WARNS AMERICANS WILL BE ‘SHOCKED’ BY THE EXTENT OF THE FRAUD CRISIS
In short, Minnesota’s scandals are the bitter fruit of deep-seated problems in a system in dire need of reform.
The biggest design flaw is that most of the funding for welfare programs comes from the federal treasury, but the federal government has largely delegated responsibility for administering and overseeing those programs to the states. Yet federal oversight of fraud prevention in welfare programs is often lacking, and because states spend mostly federal dollars, they lack strong incentives to ensure the funds are spent appropriately.
Case in point: the federal Child Care and Development Fund – which financed the now infamous Minnesota “Quality Learning Center” – has also drawn criticism for poor federal oversight. A 2016 U.S. Department of Health and Human Services inspector general report on that program explained that states are required to submit fraud protection plans to HHS.
MINNEAPOLIS MAYOR JACOB FREY ADMITS FRAUD CRISIS IS REAL, SAYS ‘EVERYONE COULD HAVE DO MORE’ TO PREVENT IT
These plans include things like reviewing attendance records at child care centers, conducting staff assessments, and conducting site visits. But the report noted that HHS had not established a process to ensure states are implementing their fraud protection plans. Clearly, a plan that is not implemented is useless.
Another major problem is that funding for most welfare programs is not calculated and allocated based on performance measures, but based on the number of people served. That gives providers an incentive to “fill the rolls,” and it also discourages state government officials from keeping too close an eye on these providers, as stricter controls could limit the flow of federal funds to the state.
That leads to yet another related flaw in the current system. Many welfare programs provide grants to third parties to provide services. The intended beneficiaries of these services have no say in how the funds are spent. That makes these programs vulnerable to widespread abuse, as happened in Minnesota.
CLICK HERE FOR MORE FOX NEWS ADVICE
A third-party service provider – whether for-profit or not-for-profit – can rake in a lot of public money by artificially inflating the number of participants or by claiming to provide services that they have not actually provided.
In short, Minnesota’s scandals are the bitter fruit of deep-seated problems in a system in dire need of reform.
In contrast, programs that deal directly with intended recipients and give them a say in how money is spent—for example, through bill or voucher-type mechanisms—are less susceptible to massive fraud schemes. For example, a family that receives a voucher or bill to pay for childcare has a natural incentive to get value for money.
CLICK HERE TO DOWNLOAD THE FOX NEWS APP
The silver lining of the recent crisis is that it has drawn attention to fraud in the social security system. Now is an opportunity to address this problem. Agencies must increase federal oversight of states to ensure fraud prevention occurs. Congress should also reform welfare programs to require states to provide a greater share of welfare funding, giving states more incentives to ensure programs are protected from abuse.
Policymakers and the public are outraged by what happened in Minnesota. Unfortunately, we are likely to see more of it unless policymakers address the deeper flaws of the welfare system.
Ed Haislmaier is a senior research fellow at Heritage’s DeVos Center for Human Flourishing.
CLICK HERE TO RACHEL SHEFFIELD
