Program integrity in work requirement systems faces a fundamental challenge: fraud and documentation failure produce identical administrative outcomes. A person whose work hours cannot be verified might be committing fraud by claiming hours they did not work, or they might be working exactly as claimed but unable to prove it. The verification system sees the same thing. The 2024 Medicaid improper payment rate was 5.09 percent, but 79 percent of those improper payments resulted from insufficient documentation rather than ineligibility or fraud. Systems calibrated to an imaginary epidemic of fraud will necessarily impose burdens on compliant populations that exceed any plausible fraud prevention benefit. For the 18.5 million expansion adults facing work requirements, the question is not whether fraud exists but whether anti-fraud measures will harm more eligible people than they protect.
The Gaming Landscape and Its Scale#
Work requirements create verification systems, and verification systems create gaming opportunities. Fabricated work hours, false exemption claims, document mills selling verification services, employer collusion, and identity-based fraud are all real phenomena warranting attention. But their prevalence is far lower than political rhetoric suggests.
SNAP provides a useful comparison. The USDA estimated that about 1.6 percent of SNAP benefits were trafficked in the 2015-2017 period, the clearest form of intentional abuse. The broader improper payment rate is higher, but as the Congressional Research Service emphasizes, the overwhelming majority of errors result from honest mistakes by recipients, eligibility workers, and data entry clerks rather than intentional fraud. Medicaid follows the same pattern. The gap between the improper payment rate and the actual fraud rate is enormous, and systems designed to close the improper payment rate often target documentation failures rather than fraud itself.
The distinction between genuine fraud, documentation failure, and system failure matters because they require entirely different responses. Genuine fraud involves intentional misrepresentation deserving investigation and penalties. Documentation failure involves true circumstances with inadequate proof deserving system redesign. System failure involves compliant people defeated by broken processes deserving immediate correction. Arkansas conflated all three categories when 18,000 people lost coverage in ten months, the vast majority of whom were working or exempt.
The Anti-Fraud Harm Calculation#
Every anti-fraud measure creates burden. Universal documentation requirements treat all members as suspected fraudsters, imposing verification costs on 100 percent of the population to identify problems in a small fraction. If 98 percent of members are compliant and the documentation process causes 5 percent of compliant members to lose coverage, the collateral damage exceeds any plausible fraud prevention benefit. Investigation delays compound the problem: when flagged claims sit in queues for weeks, legitimate claimants experience the same coverage loss as fraudsters even when their claims are ultimately approved.
The program integrity calculation must account for what economists call deadweight loss. Every hour a legitimate claimant spends gathering documentation, every coverage day lost during investigation delays, every medical expense incurred because coverage was suspended for administrative reasons represents real cost that does not appear on program integrity balance sheets. When prevention costs exceed fraud costs, the program destroys value rather than protects it. Political pressures toward over-enforcement distort this calculation because politicians face asymmetric consequences: a news story about fraud generates outrage, while a story about an eligible person losing coverage to paperwork requirements generates less attention.
Some fraud tolerance may be optimal policy. If preventing the last 1 percent of fraud requires measures imposing costs exceeding that fraud’s cost, tolerating it is the efficient choice. The Social Security Administration achieves near-100 percent take-up among eligible beneficiaries through systems that minimize documentation burden and presume eligibility based on available data. Fraud exists in Social Security, but the program’s design prioritizes access for eligible people over exclusion of ineligible people.
Strategic Alternatives#
Risk-based targeting concentrates scrutiny on claims exhibiting patterns associated with actual fraud while allowing routine claims to proceed with minimal friction. Pattern analysis detects organized fraud operations, like document mills, that individual claim review would miss. Post-payment audit provides coverage based on reasonable verification and audits samples afterward, prioritizing access while maintaining accountability through retrospective review.
Self-attestation with strategic audit represents the most access-friendly approach. Oregon accepts applicants’ attestation unless highly discrepant information surfaces through existing state systems, and internal audits have shown no increase in eligibility determination errors compared to more stringent requirements. The feared flood of fraud from attestation-based approaches has not materialized. Penalty-of-perjury deterrent creates legal consequences for intentional falsehood without creating documentation burden. Community organization intermediary verification offers a middle path where trusted local organizations attest to activities they directly observe.
The Bottom Line#
Program integrity means getting it right on both dimensions: paying benefits to eligible people and not paying benefits to ineligible people. Systems optimized only for the second dimension, measuring success by fraud prevented without measuring failure by eligible people excluded, are not integrity systems. They are exclusion systems with integrity branding. Work requirement implementation offers an opportunity to design program integrity that concentrates resources where fraud actually occurs while removing barriers that prevent eligible people from accessing coverage they have earned.
Source: MRWR-13D_Gaming_Fraud_Program_Integrity.md Series 13: When Compliance Meets Reality GroundGame.Health Research Series on Medicaid Work Requirements