Citizen journalists exposing schemes to defraud the federal government by billions of dollars are shining light on the problems of fraud in entitlement and spending programs. Yet another way that our taxpayer funds are squandered is through improper payments. These are payments that should not have been made or were made in an incorrect amount under statutory, contractual, or administrative requirements. Improper payments include fraud or abuse, as well as innocent errors, documentation failures, and overpayments.
The Government Accountability Office (GAO) has recently released a report detailing the extent of improper payments made by government agencies in 2025. Across 15 agencies, estimated improper payments totaled $186 billion. This is up $24 billion from the year before. Some programs that were deemed susceptible to significant improper payments were excluded from this estimate, such as Temporary Assistance for Needy Families (TANF). The programs that made up the majority of these improper payments are Medicare, Medicaid, the Earned Income Tax Credit, and the Supplemental Nutrition Assistance program (SNAP).
Medicaid and SNAP alone lost nearly $50 billion to improper payments. Even though Medicaid has one of the lowest improper payment rates in the GAO report at 6.1%, it made up 20% of government-wide improper payments. SNAP had an improper payment rate of 10.9%. Some level of fraud has been tolerated in these programs for years because of how vital these funds are for families that need them. Last year, during the government shutdown, SNAP was a major worry on Americans’ minds, with more than 42 million people receiving benefits. However, this is not a reason to tolerate such high levels of wasteful spending, especially when the U.S. public debt has reached 100% of GDP.
Funding Schemes for States Fuel Fraud
What is allowing these programs to rack up such high rates of improper spending, fraud, and waste? For SNAP, Medicaid, and other federally funded state-administered programs, the mechanism that allows waste is in the financing structure itself. Each individual state is in charge of running these programs through its own agencies, while federal taxpayers foot the bill.
For Medicaid, this is through a matching-grant system: For every dollar spent by a state government, the federal government provides between $1 and $9 to match the state share, depending on the matching rate for the state and population. The federal government ends up funding 70% of Medicaid, while states are incentivized to increase enrollment in order to get the maximum amount of money possible.
For SNAP, federal taxpayers end up funding 95% of the program’s costs. Although states and the federal government split the administrative costs, the federal government is responsible for the cost of the benefits that go to recipients. So, once again, states have an incentive to maximize participation in SNAP to get the most money.
Even if it is legal for state agencies to follow these incentives and pay eligible recipients, why are there so many improper payments? States not only have incentives to enroll as many people as possible, but they also have no reason to stop fraud and waste when it happens. So, recipients have been found selling their SNAP benefits to others for cash, falsifying eligibility, and governments have even falsified their own records. In fact, GAO has already proven how easy it is to be approved for government benefits by sending in a false application. By creating fake applicants, GAO found that nearly all of their test applications were accepted, funded, and received benefits.
Medicaid is also susceptible to fraud, as states are able to levy a tax on healthcare providers and use this revenue to claim federal matching funds without spending any of their own state dollars. This loophole has been closed, and the Congressional Budget Office estimates that changing this policy would reduce Medicaid spending by $226 billion over 10 years.
However, there are other ways that funds leak out of this program. One is duplicate payments. The Centers for Medicare and Medicaid Services (CMS) reported that 2.8 million people were enrolled in two or more Medicaid or Affordable Care Act plans. Through these duplicates, insurers received $4.3 billion in payments. These are just two examples, but many more schemes have taken advantage of government funds.
What Can be Done
The Working Families Tax Cuts (also known as the One Big, Beautiful Bill Act, enacted in 2025) include strong reforms to combat waste, fraud, and abuse. For Medicaid, the law includes provisions to prevent duplicate enrollments across multiple states and requires states to conduct a quarterly review of data to determine if any enrollees are deceased and to redetermine eligibility more frequently. These provisions will increase the oversight requirements for states. Another provision of OBBBA would require able-bodied enrollees to have 80 hours of community engagement work for at least one month in order to be eligible.
For SNAP reforms, there are provisions with more consequences for states. States with improper payment rates above 6% would now be required to pay 5 to 15% of their SNAP benefits starting in fiscal year 2028, previously states only had to share the administrative cost. While this includes a stronger accountability and provides an incentive for states to reduce fraud and waste, there is a loophole that works in the opposite direction. Nicknamed the “Alaska carve out,” states with improper payment rates higher than 13.34% in either fiscal year 2025 or 2026 can delay the cost-sharing consequence until fiscal year 2029 or 2030, depending on which year they choose. This delay can only be taken once, but it creates a perverse incentive to maximize improper payment rates in the current year. This should be addressed.
Other bills have been introduced in Congress to enforce lower improper payment rates in other block grant programs, such as the CRACKDOWN Act, but currently, very few incentives exist to discourage states from wasting federal taxpayer dollars on improper payments.
Bottom Line
Medicaid, SNAP, and similar entitlement programs create perverse incentives for states that administer these programs. While reforms such as those in the One Big, Beautiful Bill Act are a step in the right direction to stamp out fraud and abuse, the federal government must be careful not to create any loopholes or workarounds that can be exploited by states trying to avoid accountability. States, on the other hand, must also take responsibility for their role in creating opportunities for fraud and invest in fraud prevention in their own agencies.