JEC Brief Highlights Misaligned Incentives for State Medicaid Fraud Enforcement

WASHINGTON, DC – Today, the Joint Economic Committee released a new issue brief entitled Who Pays, Who Saves? How Medicaid Payment Structures Impact Fraud Enforcement, examining how the federal-state Medicaid financing structure may create misaligned incentives for states to identify and address fraud, waste, and improper payments.

“Given the amount of federal spending on healthcare services, I’ve often said the federal government is basically an insurance company with a military,” said JEC Chairman David Schweikert. “Nearly half of jobs added since 2019 have been in healthcare and social assistance, and in some states virtually all net job growth has come from that sector, raising the question whether that reduces the incentive for states to aggressively pursue fraud. As states administer these programs despite the federal government paying the majority of the bill, they should bear more of the financial risk. Moving toward block grants would give states a greater incentive to root out waste, fraud and abuse.”

As healthcare spending consumes a growing share of federal expenditures, effective oversight is critical to ensure taxpayer dollars support patient care. While the Working Families Tax Cuts, enacted in July 2025, addressed fraud and inefficiencies, additional action may be needed, particularly in Medicaid.

JEC’s latest brief examines how Medicaid payment structures may affect oversight of rapidly growing services such as applied behavior analysis (ABA) and increase the risk for fraud and improper payments. In fact, the White House reports that Medicaid and CHIP spending on ABA increased more than 400% from 2021 to 2025, surpassing $10 billion, alongside reports of unusual billing and utilization patterns.

Key findings include:

1. Medicaid spending is growing rapidly, raising program-integrity concerns. An April 2026 JEC brief found Medicaid home health spending more than quadrupled in some states and identified waiver programs as particularly vulnerable to fraud due to inconsistent oversight and low barriers to entry

2. Healthcare is driving an increasing share of job growth in some states. Nearly half of U.S. nonfarm jobs added since July 2019 have been in healthcare and social assistance. In states such as California, healthcare and social services account for essentially all net job growth, increasing those states’ economic dependence on healthcare spending.

3. Federal-state Medicaid incentives may be misaligned. The federal government pays at least half of Medicaid costs, while states can experience more direct effects on employment, tax revenue, and services when healthcare spending is reduced. This may weaken incentives for states to aggressively address waste or improper payments.

4. The paper calls for stronger federal oversight. Congress could require CMS to identify unusual Medicaid spending patterns, review high-risk claims before payment, and require states to address significant discrepancies. With Medicaid spending projected to reach $8.3 trillion over the next decade, even modest reductions in improper spending could generate significant savings.

Read the full brief here.

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