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Medicaid’s True Improper Payments Double Those Reported by CMS [1]

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Date: 2025-03-03 14:00:09+00:00

This massive gap in measurement occurred because both the Obama administration and the Biden administration did not include reviews of state eligibility determinations in the PERM audits. This meant that CMS did not even check if the individuals that states enrolled in Medicaid—and on whose behalf payments were made—were even eligible for Medicaid. This resulted in hundreds of billions of dollars in improper payments not being counted as such. Importantly, these improper payments significantly benefitted health insurers, as most Medicaid enrollees are in managed care.

Medicaid is a means-tested welfare program, and to qualify for the program, people must meet income requirements and other criteria. These eligibility determinations became more important after the Medicaid expansion contained in the Affordable Care Act (ACA), because the ACA created a new category of able-bodied, working-age enrollees. The federal government typically reimburses states for between 50 percent and 75 percent of their costs for traditional Medicaid enrollees—which includes children, pregnant

women, seniors, and individuals with disabilities. Under the expansion, the federal government reimburses states for 90 percent of their costs for able-bodied, working-age, generally childless enrollees. The expansion reimbursement rate was 100 percent from 2014 through 2016, before it gradually declined to 90 percent in 2020. In other words, states are provided a greater federal reimbursement percentage for enrolling non-traditional Medicaid recipients. This higher reimbursement rate for expansion enrollees creates an incentive for states to improperly classify traditional enrollees, as well as ineligible applicants, as expansion enrollees.

Another problem is hospital presumptive eligibility, an expedited Medicaid enrollment process that permits hospitals to enroll people into Medicaid based on only a few questions about income and household size, and without verification of their answers. People receive temporary Medicaid coverage pending a review. The Foundation for Government Accountability found that in 2018, 70 percent of people deemed eligible by hospitals were eventually determined ineligible or did not ultimately have their information verified.

Despite the new expansion population and a greater-than-ever need to assess whether states properly determine Medicaid eligibility, the Obama administration halted eligibility reviews for the 2015 through 2018 cycles, and the Biden administration halted meaningful eligibility reviews for the 2021 through 2024 cycles.

To estimate improper payment rates, CMS does a PERM audit for one-third of the states each year. For all states to be represented, the national improper payment rate reported by CMS is the weighted average of the PERM audits over the previous three years. The only two cycles in which states conducted full improper payment audits, including eligibility determinations, were 2019 and 2020. In those cycles, the improper payment rates among the states CMS measured were 26.2 percent and 27.5 percent, respectively.

The reported year for the cycle is for audits conducted during the previous July 1 through June 30 period. So, the 2019 cycle was for audits conducted from July 1, 2017, through June 30, 2018. The improper payment rate reported by CMS in their 2019 report would be for the 2017 through 2019 cycles, covering audits conducted between July 1, 2015, through June 30, 2018.

In 2021, CMS again made the decision, using state COVID flexibilities as its justification, to stop meaningfully assessing eligibility in the annual PERM audits. Through the 2024 PERM audits, CMS had not resumed real reviews of states’ eligibility determinations. Consequently, none of the three-year average improper payment rates reported in the government’s official payment accuracy database over the past decade incorporates complete measures of eligibility errors. Most of the reports assume no or virtually no eligibility errors. The figure shows how CMS’s official Medicaid improper payment rate is largely a function of the percentage of PERM audits that assessed the accuracy of state eligibility determinations. The official improper payment rate soared during the years when eligibility assessments were part of the official improper payment rates.

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[1] Url: https://paragoninstitute.org/medicaid/medicaids-true-improper-payments-likely-double-those-reported-by-cms/

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