For more than 30 years, Washington has known that Medicaid hemorrhages taxpayer dollars through fraud, waste, and abuse, including payments for people who are already dead. What is remarkable is not the discovery of these failures but the federal government’s persistent refusal to stop them.

On Dec. 23, 2025, the HHS Office of Inspector General released a nationwide audit estimating that Medicaid made $207.5 million in unallowable capitation payments to managed care organizations on behalf of deceased enrollees in just one year, from July 2021 through June 2022 — confirming what insiders have long understood. The federal share alone totaled $138.6 million. These payments occurred because states failed to promptly disenroll recipients after death, a basic safeguard federal watchdogs have warned about for decades.

The Inspector General made clear that this was not a first-time failure. Audits dating back to 2016 had already identified nearly $289 million in similar improper payments, yet the same weaknesses persisted. The fact that this report drew immediate national coverage reflects how little progress has been made despite years of warnings.

This was not a secret scandal. It was institutional indifference.

This was not a secret scandal. It was institutional indifference.

Using the federal government’s own data, the scale of the problem becomes clear. If Medicaid improperly paid providers and managed care organizations roughly 100 million dollars per year on behalf of recipients who were already deceased, a conservative projection based on the most recent audit, and if this narrow failure continued since the mid-1990s, the cumulative cost to taxpayers would be substantial. Over 30 years, even applying a modest 3 percent annual compounding rate that is well below long-term Treasury yields, losses from this single category of improper payments would plausibly exceed five billion dollars. This is not a reported total but an illustrative projection, and it highlights how quickly waste accumulates when basic controls are ignored year after year.

That estimate reflects only one sliver of the problem. It excludes the broader universe of Medicaid waste documented repeatedly by federal auditors. According to the Centers for Medicare and Medicaid Services, Medicaid improper payments have peaked at nearly $100 billion annually in recent years, exceeding 15 percent of total program spending at their height. While many of these payments are classified as documentation or eligibility errors rather than proven fraud, they still represent taxpayer dollars spent without legal justification.

Washington did not overlook this problem. It learned to live with it.

A Republican governor once told me candidly that Medicaid and food assistance functioned as economic stimulus for the local economy. Hospitals depended on the money. Managed care companies depended on it. Vendors and consultants depended on it. There was little political appetite to aggressively root out waste because too many powerful interests benefited from the continued flow of federal dollars.

That attitude remains deeply entrenched.

Federal agencies bear direct responsibility. The Centers for Medicare and Medicaid Services routinely approve state plans and waivers that expand spending while tolerating weak eligibility controls. The Department of Health and Human Services issues audit after audit documenting waste, yet no senior federal official ever faces consequences when billions are misspent.

The revolving door only reinforces this complacency. Many senior federal health officials spend their time in government preparing for their next opportunity, often with the same managed care organizations, consulting firms, or health systems that profit from Medicaid’s complexity. Oversight becomes performative when regulators know their future livelihoods may depend on the industry they are supposed to restrain. Taxpayers are not their constituency. Prospective employers are.

Washington’s response, therefore, never changes. More audits. More task forces. More press releases. The U.S. Government Accountability Office, however, has repeatedly warned that post-payment audits recover little money because fraud and abuse are identified years after funds are disbursed. Recovery rates are low. Administrative costs are high. Program integrity efforts routinely fail to generate meaningful net savings.

You cannot audit your way out of a structurally broken program.

The core problem is design. Medicaid is built around onerous rules and layers of intermediaries that profit from complexity. Large managed care organizations sit between patients and providers. Billing systems reward volume rather than outcomes. Eligibility systems are fragmented across agencies and states. Every additional layer creates new opportunities for error, abuse, and concealment.

The solution is not more bureaucracy. It is a simplification and structural reform.

States should be given the option to operate Medicaid under aggregate spending cap waivers with real flexibility, similar to the global waiver Rhode Island received in 2009. That waiver allowed the state to manage Medicaid under an overall spending cap while rapidly changing delivery systems, rebalancing long-term care away from institutions, and modifying payment models without constant federal micromanagement. Independent evaluations confirmed that Rhode Island’s waiver slowed spending growth while improving care coordination, demonstrating that states can innovate when freed from rigid federal control.

Aggregate cap waivers give states real skin in the game. That flexibility also enables states to shift toward more appropriate models of care, like direct primary care-based models that connect patients directly to accountable providers, reduce reliance on corporate middlemen, and simplify payment structures. When complexity disappears, fraud opportunities shrink dramatically.

This approach will not eliminate all waste and fraud. No system can. But it addresses the root cause Washington continues to avoid. Medicaid’s complexity is not an accident. It is the operating model.

The $207.5 million paid for deceased recipients in a single year is not an anomaly. It is the predictable outcome of a system designed for expansion rather than accountability. After three decades of warnings, audits, and missed opportunities, taxpayers deserve more than ritual outrage and recycled reforms.

We already know the cost of doing nothing. We have been paying it for 30 years.

READ MORE from Gary D. Alexander:

The ACA’s Unraveling: Fifteen Years of Unintended Consequences

The Bureaucracy Has Become the Mission

Reclaiming America’s Graduate Pipeline

Gary D. Alexander served as secretary of health and human services in Rhode Island and Pennsylvania.