Welfare Digest | Medicaid and SNAP Lost Nearly $50 Billion to Improper Payments in 2025

Links & Benefits Breakdowns

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Here are this week’s links and benefits breakdowns:

• Medicaid and SNAP Lost Nearly $50 Billion to Improper Payments in 2025. A new Government Accountability Office (GAO) report finds that Medicaid and the Supplemental Nutrition Assistance Program (SNAP) made approximately $47.6 billion in improper payments in fiscal year 2025: $37.4 billion in Medicaid and $10.2 billion in SNAP. As the Debt Dispatch has previously covered, one reason improper payments remain so persistent in these two programs is due to their financing structures. Federal taxpayers currently pay more than 95 percent of SNAP’s costs, leaving states with little incentive to invest in reducing payment errors since they face almost no fiscal consequence for mismanagement. Federal taxpayers also cover more than 70 percent of Medicaid’s costs, and its open-ended matching structure, which provides states between $1 and $9 in federal funding for every dollar they spend, rewards maximizing enrollment and overspending over ensuring program integrity.

• House Oversight Committee Highlights State Abuse of Alaska Carveout Loophole. As the Debt Dispatch has previously covered, some states are using the “Alaska Carveout” to dodge the One Big Beautiful Bill Act (OBBBA)’s SNAP integrity reforms. OBBBA aimed to hold states accountable for improper SNAP payments by requiring them to pay for a portion of the food stamp benefits they issue when their payment error rates exceed 6 percent, starting in fiscal year 2028. However, the Alaska Carveout undermines this by granting states with error rates above 13.34 percent a temporary exemption from matching fund penalties for up to two years. Officials in at least two states, New Mexico and Maryland, have already been caught trying to keep payment error rates elevated to delay penalties. As Representative Frost (D-FL) points out, the Alaska Carveout “penalizes the states that make good faith efforts to improve integrity and reduce their errors and rewards the worst-performing states.” Consequently, states like Florida, which had one of the highest improper payment rates in the country in fiscal year 2024 at 15 percent, “are getting rewarded for running a horrible program.”

• New York City Looks for Ways to Avoid Medicaid Work Requirements. “New York’s healthcare industry has found an amusingly dumb way to side-step Medicaid’s extremely loose work requirements,” says Manhattan Institute scholar Chris Pope. As the Debt Dispatch has previously covered, OBBBA required able-bodied, childless adults on Medicaid to work at least 80 hours per month to maintain their coverage. But as Joseph Goldstein writes for the New York Times, New York City officials are “getting very creative” in finding ways to meet the new work requirements, such as signing recipients up for volunteer work to help other New Yorkers navigate Medicaid’s new rules. As Pope points out, this is a consequence of Medicaid’s financing structure, in which states claim $9 in federal funding for every $1 they spend on able-bodied adults. This gives them a significant incentive to “find every possible loophole” and implement the work requirements “in the loosest possible way”—enforcing the requirements would shrink their able-bodied caseloads and, with them, their funding stream. As Pope says, “a Medicaid work requirement that can be satisfied by work in the administration of Medicaid work requirements surely deserves a special place in the annals of governmental absurdity.”

• Millions of Potentially Improper Obamacare Exchange Enrollments in 2026. According to the Paragon Health Institute, millions of Obamacare exchange enrollees are incorrectly reporting incomes to maximize subsidies, raising serious fraud concerns. In 2025, an estimated 6.4 million exchange enrollees claimed income between 100 and 150 percent of the federal poverty level (FPL)—the range qualifying for the largest federal subsidies—without actually having income within that range, costing taxpayers more than $27 billion that year. Paragon scholar Mark Howell adds that these problems likely continued in 2026, with “56 percent of all sign-ups in states using the federal exchange—and 46 percent of all sign-ups nationally—[claiming] income” within the 100-150 percent of FPL range. These findings align with what the Debt Dispatch has previously reported on the exchanges’ vulnerability to fraud: A recent Government Accountability Office report found that 23 of the 24 fictitious applications it submitted were approved for subsidized coverage. As Paragon scholars Brian Blase, Chris Medrano, Niklas Kleinworth, and Jackson Hammond explain, weak verification measures, billions in subsidies flowing without sufficient oversight, and strong incentives to misreport income to maximize subsidies have all contributed to the Obamacare exchanges being “rife with fraud and abusive spending.”

  

• Eliminate TANF’s Contingency Fund. Congress spends $608 million annually on an emergency reserve fund that now functions as a permanent entitlement, according to a recent Administration for Children & Families (ACF) issue brief. The Temporary Assistance for Needy Families (TANF) Contingency Fund was created in 1996 to provide states with extra funding during economic downturns. One of the fund’s eligibility triggers is tied to whether a state’s food stamp caseload exceeds its fiscal year 1994 or 1995 level. But food stamp caseloads have remained permanently above this benchmark since 2008 due to eligibility expansions and population growth, with 45 jurisdictions qualifying as “needy” in every month of fiscal year 2024. States must also spend at least as much on TANF as they did in 1994 to receive funding. But because this requirement was never adjusted for inflation, its real value has eroded by more than half, “substantially lowering the effective threshold states must meet to qualify.” These two factors have transformed a “temporary safety net for states during recessions” into a “standing transfer mechanism that operates largely independent of real economic distress.” The House Budget Committee estimated that eliminating TANF’s Contingency Fund would save $6 billion over the fiscal year 2025-34 period.