A new issue brief from the U.S. Congress Joint Economic Committee (JEC) Republicans contends that Medicaid’s federal-state cost-sharing system may inadvertently discourage states from aggressively pursuing fraud and improper payments. This effect is particularly pronounced in states with economies that are heavily reliant on healthcare and social services. The report, titled Who Pays, Who Saves? How Medicaid Payment Structures Impact Fraud Enforcement, argues that because states are responsible for a maximum of 50 cents for every Medicaid dollar spent, they may have less motivation to crack down on wasteful spending that supports local job growth and economic activity.
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The JEC brief highlights a central tension: states benefit economically from federal Medicaid spending, which can make them less likely to enforce strict fraud prevention measures when the federal government shoulders most of the financial risk. This dynamic, according to the report, could lead to underenforcement of anti-fraud efforts, especially in states where healthcare is a significant driver of employment and tax revenue.
Medicaid spending is projected to exceed $8 trillion over the next decade, underscoring the stakes for both federal and state governments. States like California, where more than 10 million residents are enrolled in Medicaid, face significant economic impacts from any reduction in federal healthcare funding. The report notes that in states where healthcare and social services are major sources of job growth, reductions in federal Medicaid payments can have immediate and far-reaching effects on local employment and public finances.
Incentives and Enforcement Challenges
The JEC brief, authored by senior policy advisor Alex Schunk, examines how states that are more economically dependent on healthcare may be especially sensitive to decreases in federal Medicaid spending. Schunk writes that while there is no evidence states are deliberately allowing fraud, the current cost-sharing structure means "there may be underenforcement especially when healthcare is a significant part of a state’s economy."
"As job growth in certain states becomes increasingly dependent on healthcare and social services, states may have less incentive to rein in wasteful or unnecessary spending that may be artificially driving job growth."
— Alex Schunk, JEC senior policy advisor
The brief uses California as a case study, noting its large Medicaid population and the state’s involvement in a lawsuit against the federal government over new work requirements introduced in the Republicans’ "One Big Beautiful Bill" (OBBBA). According to estimates from the Congressional Budget Office and other analysts, about 5 million people could lose coverage for failing to meet these requirements. Such a reduction would decrease both state Medicaid spending and the corresponding federal matching payments, with potential ripple effects on the state’s healthcare sector and broader economy.
Federal Reforms and State Lawsuits
The OBBBA also included new measures aimed at preventing fraud and improper payments, further reducing the flow of federal dollars to state healthcare systems. JEC Chairman Rep. David Schweikert, R-Ariz., has called for reforms to Medicaid’s payment structure, arguing that states should bear more financial risk to encourage stronger anti-fraud efforts. "Given the amount of federal spending on healthcare services, I’ve often said the federal government is basically an insurance company with a military," Schweikert said in response to the brief.
Schweikert has advocated for moving toward block grants, which he argues would give states a greater incentive to "root out waste, fraud and abuse." The JEC report suggests that aligning state incentives with federal interests could help reduce improper payments and stabilize Medicaid spending over time.
Broader Context and Stakeholder Responses
The issue brief’s findings come amid ongoing legal and political battles over Medicaid policy. California and roughly two dozen other states have sued the federal government over the OBBBA’s work requirements, arguing that these changes will lead to coverage losses and reduced federal funding. Supporters of the new requirements contend they are necessary to ensure program integrity and reduce fraud, while opponents warn of negative impacts on vulnerable populations and state economies.
While the JEC report raises concerns about state incentives, it acknowledges that states are not intentionally permitting fraud. The brief does not include responses from state officials or Medicaid administrators regarding the claims about enforcement incentives. The debate over Medicaid’s structure and oversight is likely to continue as federal and state governments negotiate the balance between program integrity, economic impact, and access to healthcare for millions of Americans.
For more details, see the full JEC Republican issue brief Who Pays, Who Saves?.
