New Mexico’s program is just the tip of the iceberg.
While experts have long dismissed large-scale Medicaid fraud as improbable, evidence from New Mexico tells a different story. This discovery presents an unprecedented opportunity to offset part of the $880 billion budget deficit without cutting healthcare services for enrollees.
As the most powerful stakeholders, insurers frame fraud as an issue with hospitals, physicians, and enrollees while quietly escaping scrutiny themselves. A 2020 Health and Human Services report claimed that fraud in Medicaid fee-for-service stood at 12.3%, compared to just 0.3% in Medicaid managed care, reinforcing the industry’s message that managed care is highly efficient. However, the Government Accounting Office offers a starkly different interpretation, arguing that fraud in managed care is simply escaping detection.
Unlike fee-for-service, managed care payments are issued in advance based on projected costs. When actual costs turn out to be lower, insurers are legally required to return excess funds. The failure to do so amounts to fraudulent retention—and this is where a massive financial recovery opportunity lies.
New Mexico’s Medicaid program provides a striking case study:
- A 2019 report from the New Mexico Legislative Finance Council revealed that the state recovered $660 million in overpayments made to Medicaid insurers between 2014 and 2017.
- The recovery occurred well after the 60-day deadline imposed by the Affordable Care Act, violating False Claims Act provisions.
- Under the False Claims Act, insurers must not only return overpaid funds, but also pay treble damages, which happens when a court awards a plaintiff three times the amount of actual damages assessed by a jury. Applying this rule, an additional $2 billion remains uncollected from New Mexico’s Medicaid insurers.
New Mexico’s case highlights a national loophole: 34 other states that expanded Medicaid under the Affordable Care Act received similar deliberate overpayments—yet they have taken no action to reclaim excess funds.
A conservative estimate based on New Mexico’s findings suggests that at least $100 billion remains uncollected nationwide. Including treble damages, the total potential recovery could exceed $400 billion.
Another major issue stems from how Medicaid premium rates are calculated:
- Rates are based on previous years’ premiums—meaning that if overpayments go unnoticed, future premiums carry inflated costs.
- This results in persistent excessive payments to insurers, sustaining inflated costs for over a decade since the implementation of the Affordable Care Act.
- While it remains unclear whether the Affordable Care Act allows recovery of inflated premiums from previous years, addressing these errors today would significantly reduce future Medicaid costs.
By enforcing existing laws, it is possible to cut Medicaid costs without reducing services.
For instance, the Affordable Care Act mandates that 85% of managed care premiums must be used for medical costs. If costs fall below this threshold, insurers are legally required to return excess funds to the government. New Mexico proved this rule works—other states must follow suit.
Yet, insurers have manipulated the fraud conversation to shift blame elsewhere. Their lobbying influence ensures media narratives that vilify low-income patients, physicians, hospitals, and labs, while shielding their own financial misconduct. This is a classic case of the fox guarding the henhouse—and it must end.
Perhaps the Centers for Medicare & Medicaid Services finds it politically awkward to enforce these rules given its direct partnership with insurers in providing care. To remove conflicts of interest, the best solution is to separate enforcement from administration.
This issue isn’t just an opportunity—it’s an obligation. If policymakers fail to act, they will knowingly allow fraud to persist on a historic scale, threatening the ability of Medicaid to provide medical care to its intended beneficiaries.
Billions can be recovered for taxpayers, premiums reduced, and Medicaid costs contained—all without hurting enrollees. The federal government must act now.
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