California is leading the way in Medicaid abuse

CMS is setting a dangerous precedent for the rest of the nation.

California has just asked for and received a waiver from the federal government that allows the state to skip eligibility verification for Medi-Cal.

According to estimates from the National Health Care Anti-Fraud Association, American taxpayers are losing more than $100 billion a year to Medicare and Medicaid fraud. In California – where the Medicaid program is referred to as Medi-Cal – there is little incentive to address waste, fraud and abuse in the handling of billions in federal funding.

With Medi-Cal, it now appears that California’s sloppiness is by design as there are perverse incentives to actually expand abuses. First, some background.

The Social Security Act mandates that Medicaid’s eligibility guidelines include verification of assets, income, and employment status. But, amid the chaos of the COVID-19 pandemic, emergency measures were enacted, and Medicaid enrollment was facilitated without the usual verification of eligibility. While understandably designed to provide immediate relief during a crisis, by law it was to be only a temporary measure.

Medicaid’s suspension of eligibility determination protocols like asset verification was similar to the SBA’s fraud-riddled Paycheck Protection Program — pay first, verify later. And while millions of people kept their healthcare, it was at a cost of hundreds of billions of taxpayer dollars lost to fraud and waste.

Now that many Medicaid recipients have reentered the workforce, a major beneficiary of lenient Medicaid eligibility standards appear to be the insurance companies because they receive a per-member, per-month fee from the American taxpayers.

Private insurers encouraging lax Medicaid eligibility requirements is fast-becoming a budgetary emergency — not just for California’s Medi-Cal program, but nationally. The Louisiana Department of Health spent $112 million on Medicaid coverage for nearly 14,000 adults who don’t appear to live in Louisiana, according to a state legislative audit. Simply “verifying” someone’s address would have solved that problem. Insurance companies don’t view this as “their” problem.

Now that the pandemic has subsided, Medicaid is under a statutory obligation to enforce eligibility verification again. Without it, taxpayers will be handing thousands of dollars per person to insurance companies for people who have access to other health plans.

Unfortunately, the perception that millions of Americans are about to imminently lose their Medicaid coverage has led California to request that CMS allow them to waive the “asset verification” requirement for Medi-Cal recipients. Foolishly, CMS just approved their request in what appears to be a direct violation of the Social Security Act.

The practical effect of all this is that California has taken a huge step toward what it has wanted for decades; a single payer system known as Medicaid For All.

But the problems with this tactic – both legal and practical – are countless. First, if California is allowed to continue down this path it is likely to embolden other states to follow suit. It’s critical to consider the fiscal implications not only for individual states but also for the federal government, whose coffers are affected by such decisions.

Second, California’s failure to include asset verification is reminiscent of the state’s $31+ billion fraud loss to cybercriminals who exploited similar loopholes in the state’s unemployment insurance program — the largest sum ever lost by a state to organized crime.

Third, once somebody is on the Medicaid rolls, it is assumed by other agencies that they “qualify” for the program. This is called Broad Based Categorical Eligibility, and by being on Medicaid, somebody becomes eligible for TANF, SNAP and a host of other benefits. Has the Congressional Budget Office or the OIG even considered the financial implications of suspending eligibility requirements for all entitlement and welfare programs?

Finally, this pen-stroke policy shift raises moral, ethical, and even Constitutional concerns: can one state, in concert with a single President, violate the law, circumvent Congress, and force the rest of the country to pay for it? California surely has a right to spend $1 trillion a year, or $10 trillion for that matter, on providing free healthcare to its residents — but not using money that is taken from taxpayers of other states.

In approving California’s request to permanently dissolve asset verification for Medi-Cal, CMS is setting a dangerous precedent for the rest of the nation. The situation demands scrutiny and a transparent debate. Rather than allowing this policy shift to unfold in the shadows, a public debate should be robust and inclusive. This is a decision that affects not only those in need of healthcare assistance but also every taxpayer who bears the financial burden of such expansion, including future generations.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.