Medicaid Fraud Is Real. So How Big Is It, and Why Is Washington Defunding Some of the Watchdogs?

THE QUESTION

The federal government is in the middle of the biggest anti-fraud push Medicaid has ever seen. Billions in payments frozen. State fraud units defunded. Every state ordered to recheck its providers. Officials say fraud is draining the program. Critics say the threat is overstated and the response is political. Both sides throw around big numbers. So how much Medicaid fraud is there, really?

WHAT WE KNOW

Start with the size of the program. Medicaid costs about $930 billion a year and covers roughly 73 million low-income and disabled Americans. Then look at three numbers that get mixed together constantly.

The first is $2 billion. That's what state Medicaid Fraud Control Units recovered through convictions and settlements in 2025, about 0.2% of spending. It's the floor, not the ceiling, because it only counts fraud that was caught. The second is $37 billion. That's the federal share of "improper payments" in 2025, about 6% of federal Medicaid spending. It gets cited as a fraud number all the time. It isn't one. CMS says roughly three quarters of improper payments come down to missing

documentation, and that they're generally not a sign of fraud. Medicare's improper payment rate is the same 6%. The third is about $100 billion. That's what CMS Administrator Mehmet Oz has said the administration thinks predicted fraud could reach nationwide. We could not find a published methodology behind it.

Real fraud exists, and it's brazen. In June, DOJ announced charges against 455 defendants tied to $6.5 billion in alleged false claims, with 50 state fraud units participating, the most ever. A federal policy brief found known fraud, waste, and abuse make up less than 1% of Medicaid spending, though that only measures what's been discovered. Some conservative analysts, including the Paragon Institute, argue the official numbers understate the problem and that improper payments point to much more fraud than the government admits.

Now the crackdown. CMS has deferred about $2.5 billion in payments to California and Minnesota, the largest deferrals it has ever issued, citing fast growth in in-home care spending. In June, HHS denied recertification to Hawaii's fraud unit, the first time a state unit has ever been decertified. On July 1, HHS suspended roughly $60 million a year in federal funding for New York's unit, which has more than 270 staff. The suspension runs through September 30, two days from now. It can be lifted early if New York shows corrective action. If it doesn't, no federal money for fiscal 2027.

WHAT'S MISSING

Here's the part most headlines skip. New York's unit ranked last among similar-sized states on criminal convictions between 2023 and 2025, and the federal letter admits why: New York chose to chase complex, high-impact civil cases instead. New York Attorney General Letitia James calls the move a political distraction and says her office has recovered more than $627 million for Medicaid since 2019. A Massachusetts fraud chief said on a recent panel that about half his unit's cases are civil, and that regulatory violations are more common than the movie-style criminal fraud people picture. So which scorecard counts? Convictions, or dollars recovered? Nobody in Washington has said.

There's also a credibility problem. In April, CMS told the Associated Press it made a significant error in figures used to justify a fraud probe in New York. And while officials say the effort covers red and blue states alike, it has landed mostly on Democratic-led ones, even though federal data show benefits fraud isn't more common there.

The most surprising voices are state officials themselves. On a bipartisan panel September 17, Medicaid leaders from New York and Nebraska, and a Massachusetts fraud chief, credited the federal push with better coordination and more joint prosecutions. They also warned that freezing billions hurts everyone, that fraud units losing funding may scare states away from being open with CMS, and that harm can come from doing nothing too. New York's Medicaid director said enrollment is already falling in some groups because people are scared.

WHY IT MATTERS

Medicaid is how one in five Americans gets health care, including kids, seniors, and people with disabilities. Fraud steals from them. But so can a crackdown that freezes payments to legitimate providers or defunds the very units built to catch fraudsters. If you care about both taxpayers and patients, the question isn't whether to fight fraud. It's whether the tools being used actually catch fraudsters or mostly hit everyone else.

THE BOTTOM LINE

Established: Medicaid fraud is real and sometimes enormous. Known recoveries are small next to total spending, the "$37 billion" figure is improper payments and not fraud, and the biggest fraud estimates lack a public methodology. Also established: two state fraud units have lost federal funding while the government says it wants more fraud enforcement. Uncertain: how much fraud is actually hiding in the system, whether conviction counts are a fair way to grade a fraud unit, and what happens to New York's funding after September 30.

SOURCES & FURTHER READING

Tradeoffs and Penn LDI, "States Weigh In on Medicaid Fraud," September 24, 2026

KFF, "Understanding the Role of Medicaid Fraud Control Units (MFCUs)" and "What to Know About Recent Federal Actions Involving State Medicaid Program Integrity"

Associated Press/PBS News, "Trump administration suspends funding for New York's Medicaid fraud unit over low performance," June 30, 2026

U.S. Department of Justice, "National Health Care Fraud Takedown Results in 455 Defendants Charged," June 2026

Stateline, "Citing fraud, feds halt more than $1B in Medicaid money for California, Minnesota," July 2026

Health Affairs, "Withholding Medicaid Dollars Won't Stop Fraud. It Will Hurt People," September 14, 2026

Paragon Institute, "Medicaid Waste, Fraud, and Abuse: Why CMS's Improper Payment Rate Can't Be Trusted"