Welfare Fraud Policy Brief
March 07, 2017
Combating Welfare Fraud in Mississippi with Commonsense Reforms
A bill (HB 1090) before the Miss. Legislature implements a number of best practices aimed at combatting welfare fraud. The bill would save the state an estimated $40 million  annually by verifying eligibility for Medicaid and SNAP/food stamps. The bill also creates oversight procedures - like tracking where EBT (food stamp) and TANF cards are used - to discourage fraud.
The U.S. Government Accountability Office (GAO) warned again this year, as it has for the past 14 years, that Medicaid is a "high-risk" program owing to "vulnerabilities to fraud, waste, abuse, and mismanagement." An estimated $60 billion in Medicaid expenditures are thought to be lost to fraud each year. Likewise, according to the National Conference of State Legislatures, "Fraud and abuse in Medicaid cost states billions of dollars every year, diverting funds that could otherwise be used for legitimate health care services."
There are basically two types of Medicaid fraud: provider fraud and enrollee fraud. While the federal government apparently has no mechanism in place to accurately track fraudulent Medicaid spending, its Centers for Medicare & Medicaid Services estimates that "eligibility errors" account for the majority of payment "errors."
This suggests that the majority of Medicaid fraud is generated by ineligible recipients. Such recipients are generally misreporting identity, residency, citizenship status and/or income. Identify theft, for example, is rampant in Medicaid. Arkansas recently audited its Medicaid rolls and found 20,000 enrollees with "high-risk" identities, many of them using stolen or falsified Social Security numbers. Illinois conducted a similar review and found 14,000 dead people on Medicaid.
Under federal law, the Miss. Division of Medicaid is supposed to verify eligibility on an annual basis. States have the option of relying on "self-attestation" for eligibility and cross checking this information against a federal database (PARIS) that is supposed to verify Social Security number usage.
In 2016, the PARIS database flagged only 2.4 percent of Mississippi Medicaid recipients as having a Social Security number used by someone in another state. By contrast, other states are finding an average fraud rate of 10 percent after implementing the reforms mandated by HB 1090. These states are using private-sector databases to quickly and inexpensively verify ongoing eligibility.
HB 1090 would require the Division of Medicaid to enter into a competitively bid contract to hire a vendor to monitor ongoing Medicaid and SNAP/food stamp eligibility. The vendor would only be paid out of the savings generated by catching fraud. The vendor would not be able to actually remove anyone from Medicaid or any other welfare program, but would only flag suspicious information, leaving it up to Miss. Medicaid to investigate and handle the removal of verified cases of fraud.
States that have implemented similar monitoring systems have seen a return on their investment of well over 10 to 1. Illinois, for instance, is saving almost $400 million annually. Pennsylvania saved $710 million in 18 months. Minnesota estimates annual savings of $307 million.
At least 11 other states are currently running or have recently run some form of enhanced welfare verification audit: Alaska, Arkansas, Illinois, Kansas, Maine, Massachusetts, Minnesota, Missouri, Pennsylvania, Rhode Island, and Wyoming.
Welfare Fraud & Abuse
The eligibility verification system created by HB 1090 would apply to all Mississippi welfare programs administered by the Division of Medicaid and the Department of Human Services (DHS), including SNAP/food stamps and TANF. Food stamp fraud in Mississippi is a serious problem, if only judging from the many cases of fraud reported in the media. According to a 2012 report in the Daily Journal, "In the last fiscal year alone, 1,705 people were disqualified from Mississippi's Supplemental Nutrition Assistance Program - SNAP - for making false claims and bilking the program out of more than $2.7 million." These 1,705 cases of fraud represent 0.2 percent of total enrollment. The actual fraud rate is likely much higher.
"The application process for SNAP is based on an 'honor system,' trusting the applicants truthfully submit their income and number of dependents," acknowledges DHS fraud investigator Ken Palmer. In particular, DHS has found that a number of recipients do not report income, causing "the client to get taxpayers' dollars that they were not entitled to."
While DHS's efforts at catching fraud are appreciated, the department is relying on a "pay-and-chase" model that enables fraudsters to remain on the rolls indefinitely, until and unless they are actually caught. Using existing technology to review welfare eligibility on a quarterly basis would speed up the process of eliminating fraud, saving the state money and sending the message that fraudsters shouldn't target Mississippi.
In addition to proactively verifying eligibility, HB 1090 reigns in welfare abuse by eliminating several loopholes used by the Obama administration to gut landmark welfare-to-work reforms signed by President Bill Clinton in 1996.
Federal law, for example, requires most working-age (18 to 50) able-bodied, childless adults to cycle off of food stamps after 3 months unless they are working, training or volunteering for at least 20 hours a week. Under a "waiver" offered by the Obama administration, Mississippi dropped this requirement from 2009 to 2016. The state has similar waivers that have eliminated income and asset tests for food stamps. These are still in place.
Kansas is another state that reinstituted the able-bodied adult work requirement, but then tracked 41,000 former recipients to analyze the results. Half obtained employment almost immediately, and almost two-thirds were working within a year. Incomes rose by an average of 127 percent a year, with many finding permanent well-paying jobs in a variety of industries. Other quality-of-life measures, like marriage rates, also increased.
HB 1090 would require legislative permission for Mississippi to again waive food stamp work requirements. The legislature would also have to statutorily authorize any waivers eliminating income and asset standards.
Other states have found good reason to implement the reforms in HB 1090. Michigan discovered it had thousands of lottery winners on welfare. "I feel that it's OK because I have no income, and I have bills to pay," admitted one million-dollar winner. "I have two houses."
Since Michigan, like Mississippi, does not have an asset standard, even multimillion-dollar winners could legally remain on food stamps until public outrage forced a change in law. In Ohio, the millionaire son of an Iranian prince was found to be receiving both food stamps and Medicaid. The man reportedly held $4.2 million in a Swiss bank account, lived in an 8,000 square foot home and had a BMW and Lexus parked in his four-car garage. In his defense, the fraudster claimed, "It was our right to apply [for food stamps] and I applied. If you don't like the system, change it." Ohio's welfare programs, not unlike Mississippi's, waive asset standards. "I answered every question asked by benefit workers," claimed the man.
Along with restoring federal welfare-to-work reforms, HB 1090 would provide state policymakers with additional information as to how the state's welfare benefits are being utilized. Among other things, the bill would track out-of-state welfare usage. When Maine ran such a check, they found $3.5 million worth of transactions in Florida, including hundreds of thousands of dollars in withdrawals from ATMs near Walt Disney World. In turn, when Florida ran such a check, they found 3,500 of their food stamp recipients were also receiving food stamps in at least one other nearby state, including Mississippi. The bill would also codify and expand the list of prohibited ATM (TANF) transactions at liquor stores, casinos and strip clubs to include spas, nail salons and similar locations.
Note 1: A fiscal note from the Department of Human Services, prepared by The Stephen Group, estimates annual savings from Medicaid verification of $6.9 million in General Fund savings and $6.2 million in federal savings from the SNAP/TANF reforms. (Mississippi pays about 25 percent of the cost of Medicaid while the federal government pays about 75 percent. The federal government pays the full share of SNAP/TANF costs, though the state is responsible for administrative costs.) The Stephen Group report assumes a fraud rate of 1 percent for Medicaid managed care; 1 percent for SNAP; and 2 percent for Medicaid long-term care. Other states that have conducted similar reviews have identified much higher fraud rates, depending on the nature of the audit: Illinois (34 percent); Arkansas (ranges between 3, 12 and 24 percent); Minnesota (17 percent). Based on the experience of other states, we anticipate an average eligibility fraud rate of 10 percent of total enrollment, which would be roughly 72,000 cases based on FY2016 average monthly enrollment of 728,704 (excludes CHIP). Not every enrollee costs the same, but annual spending per enrollee in Mississippi is $5,913: the range being $18,592 for the most expensive enrollees to $2,403 for the least expensive. If we use the very conservative estimate of $3,000 per year in enrollee costs (much less than The Stephen Group assumes), we arrive at the following: $3,000 x 72,000 cases divided by 6 months = $108 million. Based on our current FMAP, this translates into $27 million in savings for a half year. If the audit is run twice in a twelve-month period, this number will double to $54 million. Hence, we conservatively assume savings ranging from $27 million to $54 million, the average of which is $40 million. To be clear, the savings other states are seeing is not only from a one-time review of their rolls, but from constant monitoring. We recommend a quarterly audit, resulting in even greater savings. We also estimate there will be some administrative savings as non-eligible individuals drop off of the SNAP/TANF rolls. The Stephen Group report estimates the enhanced eligibility and other reforms will cost about $3 million annually, but expects federal funding to cover as much as two-thirds of this amount. Assuming the cost is even as high as $2 million annually, this would result in a return on investment of 20 to 1.