The ongoing scandal regarding Minnesota’s welfare-industrial complex demonstrates the extent to which government-created graft has “hidden” in front of the nation’s noses for not just years but decades. Another report released just before Christmas illustrates the depths of those fraudulent payments.
Last summer, I wrote here about a report by Louisiana’s legislative auditor highlighting nearly $10 million in Medicaid payments that state made on behalf of deceased beneficiaries between February 2019 and last March. Perhaps unsurprisingly, the most recent report shows that this type of government waste and abuse — or, depending on one’s perspective, fraud by insurance companies, who receive payments for “covering” dead people — occurs with regularity nationwide.
Hundreds of Millions to ‘Cover’ Dead People
The report came from the Department of Health and Human Services’ Office of Inspector General (OIG) and covered payments made to Medicaid managed care organizations from July 2021 through June 2022. The report arises because in most (but not all) cases, state Medicaid agencies do not directly administer benefits (i.e., pay doctors and hospitals who treat beneficiaries). Instead, they contract with managed care organizations and pay insurers a capitated (i.e., per-person) amount every month for that coverage. That dynamic represents a clear opportunity for fraud: If no one reports the beneficiary as deceased, the insurer will get paid to “cover” that person indefinitely.
During that one year, OIG found a total of nearly 410,000 capitation payments of $50 or more — a total of $408.5 million worth ($263.3 million of which constituted federal funds) — made “on behalf of enrollees whose dates of death … preceded service periods covered by the monthly capitation payment.” (For instance, a February capitation payment for someone who died on Jan. 10.) Out of those nearly 410,000 capitation payments, the inspectors examined a representative sample of 100 in detail.
The results were shocking, but not surprising:
We found that Medicaid agencies made unallowable capitation payments after enrollees’ deaths for 99 of the 100 sample capitation payments. However, for 50 of those unallowable capitation payments, we found that Medicaid agencies recovered the overpayments before we provided them with the sample capitation payments for their review.
It’s worth repeating those findings again: All but one of the payments to insurers on behalf of dead people were improper or fraudulent. Yet the state Medicaid programs had only recovered half (50 out of 99) of those improper payments.
Based on the cohort of 100 payments it sampled, OIG extrapolated that the unrecovered payments on behalf of deceased beneficiaries totaled $207.5 million, of which $138.6 million constituted the federal share (the states would pay the remaining nearly $69 million). But remember: The original universe of potentially improper payments totaled over $408 million, and OIG’s research found that 99 percent of potentially improper payments in its sample actually were improper.
Change on the Horizon?
It speaks to the low standards of the federal government that OIG’s report claimed only $207 million in unallowable payments by state Medicaid agencies. It should not count as a success that, in some cases, Medicaid programs had already recovered some improper payments from insurers — because they never should have made those improper payments in the first place.
A footnote in the report demonstrated how this type of abuse is a choice that states consciously make. OIG noted that “Connecticut, Maine, Mississippi, Nebraska, South Dakota, and Wyoming had no capitation payments with a service date after the month of the enrollee’s death.” In other words, these six states all imposed proper safeguards to ensure that Medicaid dollars did not go to dead beneficiaries, while 35 other states did not, leading to the improper payments. (The remaining states did not have significant amounts of capitated payments to managed care organizations and therefore would not face this type of fraud.)
If this otherwise depressing government report contains a silver lining, it’s the reminder within it that Section 71104 of last year’s reconciliation bill contains a new requirement for all states to consult the Social Security Death Master File at least quarterly to remove dead beneficiaries. That should end, or at least sharply curtail, payments on behalf of dead beneficiaries when it takes effect next January.
But it speaks volumes about the failures of our welfare-industrial complex that most state Medicaid programs will engage in common-sense program integrity efforts only when forced to do so by Washington. As is usually the case in health care, everyone does an excellent job spending everyone else’s money — that is, until the taxpayers funding the welfare-industrial complex run out of money for government bureaucrats to spend.
