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The Affordable Care Act’s Medicaid Expansion Caused Improper Payments to Soar

2dg Improper Payments
Drew Gonshorowski
Senior Research FellowatParagon Health Institute

Drew Gonshorowski is a Senior Research Fellow at Paragon Health Institute. He brings a decade of experience conducting quantitative research and building models examining health policy and entitlement programs.

Brian Blase
PresidentatParagon Health Institute

Brian Blase, Ph.D., is the President of Paragon Health Institute. Brian was Special Assistant to the President for Economic Policy at the White House’s National Economic Council (NEC) from 2017-2019, where he coordinated the development and execution of numerous health policies and advised the President, NEC director, and senior officials. After leaving the White House, Brian founded Blase Policy Strategies and serves as its CEO.

The Affordable Care Act’s Medicaid expansion has resulted in a massive increase in federal Medicaid improper payments, which soared from an estimated $14.4 billion in 2013 to $98.7 billion in 2021 as shown in this week’s Paragon Pic. The primary reason for the increase: millions of people were enrolled in Medicaid without proper eligibility reviews.

A poorly run Medicaid program harms the truly vulnerable by misallocating resources. Because of the ACA, Washington pays a much greater share of expenses for non-disabled, working-age enrollees than traditional Medicaid enrollees like low-income children, pregnant women, seniors, and individuals with disabilities. This ACA expansion elevated rate creates a large incentive for states to enroll people under the expansion criteria.

CMS paused eligibility audits from 2014 to 2017, and because states did not properly review eligibility during that period, improper payment rates were severely understated. Further, as the improper payment rate is an average over three cycles, the 2018 report accounted for only one-third of state eligibility reviews, and the 2019 report accounted for only two-thirds of state eligibility reviews. CMS stopped doing meaningful audits during COVID, so the reports after 2021 do not represent the extent of Medicaid improper payments. The best measure of the improper payment rate is likely still the 2021 report.

The ACA Medicaid expansion caused high improper payments, but the policy response to COVID-19 compounded the problem. The Families First Coronavirus Response Act (FFCRA) in March 2020 increased federal financial support of Medicaid if states did not conduct eligibility reviews or remove ineligible people from the program until the public health emergency ended, which the Biden administration extended to April 2023.

A new Health Affairs article estimates that in March 2022, 30 percent of Medicaid enrollees—or more than 26 million people—reported that they were not enrolled in Medicaid. This is an appalling problem that suggests so many recipients receive no benefit from the program and the government’s enormous expenditures.

According to the estimates, nearly half of this problem was the result of FFCRA’s requirements. This suggests that many people thought they were disenrolled from Medicaid because they gained another plan, most likely a plan from their employer and were just kept on Medicaid because states couldn’t remove people who had secured other coverage.

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