The skyrocketing cost of American healthcare is often blamed on an aging population, expensive new drugs, or corporate greed. While those factors play a role, a far more insidious crisis is draining the system from within. Millions of hard-working American families are quietly financing a massive wave of improper payments, phantom enrollments, and elaborate money-laundering schemes embedded deeply within federal healthcare programs.
The root of the issue is not just a few bad actors. Instead, federal health programs have been built on “open-ended” structures that actively reward spending more money rather than delivering actual value.
In a recent congressional testimony, Dr. Brian Blase, President of the Paragon Health Institute and former White House Special Assistant for Economic Policy, laid bare the terrifying scale of healthcare fraud, waste, and abuse across Medicaid, Medicare, and the Affordable Care Act (ACA) exchanges.
The numbers are alarming, the vulnerabilities are structural, and the trajectory is entirely unsustainable.
The Fiscal Crisis Threatening the Nation
Federal healthcare spending has become the main fiscal problem facing the United States. How serious the problem is can be realized just by looking at the huge changes in the federal budget over the last 25 years:
- In 2000: Federal health programs consumed 29% of all individual income tax, corporate income tax, and Medicare payroll tax revenue.
- By 2025: That number skyrocketed to roughly 62%.
Today, the federal government spends more money on net interest payments for its debt than it does on national defense. Every billion dollars lost to fraudulent schemes or structural leakage is financed through higher taxes, additional national borrowing, or severe cuts to other domestic priorities.
On top of that, the diversion of resources is a direct injury to the most vulnerable people. Each dollar spent on a fake enrollee or an underhand insurance broker or a non-existent caregiver is a dollar diverted from a poor child, a pregnant woman, or a disabled senior who are really in need of medical help.
1. The Shocking Scale of ACA Exchange Fraud
ACA exchanges are a great example of how subsidies that are designed to help people can be misused in case system integrity is ignored. As per the data from Paragon Health Institute, about 6.2 million exchange enrollees in 2026 were found to be unreliably enrolled. This is a huge 27% of total exchange enrollment.
These are along the same lines with very big numbers in previous years: 5.0 million improper enrollees in 2024 and 6.5 million in 2025.
The “Phantom Enrollee” Epidemic
How did this happen? During the pandemic, Congress enacted temporary subsidy expansions that created “fully subsidized plans” for individuals claiming income within specific brackets. This meant zero premiums and incredibly low deductibles.
Because the federal government advances these subsidies directly to insurance companies based on estimated future income, it created an absolute goldmine for unscrupulous brokers. Brokers receive monthly commissions for every person they sign up. Some high-volume operations have cleared upwards of $6,000 a day in commissions.
The result?
Millions of “phantom enrollees.” In 2024, 35% of all ACA enrollees, and 40% of those in fully subsidized plans, did not utilize their healthcare plan a single time during the entire year. Many of these individuals had no idea they were even enrolled; brokers signed them up using leaked or stolen identities just to collect the taxpayer-funded commissions.
The Government Accountability Office (GAO) recently verified this massive vulnerability. Using entirely fictitious applicants with missing or incomplete data, undercover GAO investigators successfully obtained fully subsidized healthcare coverage in 23 out of 24 attempts.
2. Medicaid and the “State Money-Laundering” Gimmick
Medicaid was designed as a federal-state partnership, but its open-ended reimbursement model has distorted state-level incentives. Historically, the federal government split Medicaid costs with states on a roughly 60-40 basis. Today, due to complex financing schemes, the federal share has ballooned past 70%.
Because states only bear a fraction of the cost for expanding Medicaid expenditures, many have turned to legalized accounting gimmicks to maximize the amount of money they pull down from Washington.
Managed Care and Unverifiable Services
States frequently collect artificial “provider taxes” or manipulate intergovernmental transfers to make it look like they are spending state money, triggering a federal match, and then routing that money back to favored insurers and hospital networks.
Furthermore, Medicaid has rapidly expanded its funding into non-clinical, home- and community-based services. While programs that pay family members or neighbors to care for elderly patients are compassionate in theory, they are nearly impossible to audit.
It is easy to verify if a surgeon performed a physical operation in a hospital. It is virtually impossible to verify whether thousands of hours of personal care assistance were actually delivered inside a private residence. This vulnerability was highlighted by the massive Consumer Directed Personal Assistance Program scandal in New York, which uncovered widespread billing fraud, inflated hours, and phantom caregivers.
3. Medicare’s Fatal Flaw: “Pay and Chase”
Original Medicare operates on a deeply flawed administrative philosophy: Pay first, investigate later. This traditional “pay-and-chase” model allows sophisticated criminal syndicates and corrupt providers to bill Medicare for millions of dollars, pocket the cash, and vanish long before federal oversight agencies ever flag the irregularity. In recent years, massive systemic fraud has been uncovered in everything from urinary catheters and genetic testing kits to hospice services and durable medical equipment.
“Legalized” Fraud through Poor Incentives
Not all waste in Medicare is explicitly criminal; much of it is completely legal, driven by poorly designed reimbursement policies.
For instance, Medicare recently created astronomical financial incentives for specific skin substitute products used in wound care. Providers responded exactly as the financial incentives dictated: utilization exploded, spending skyrocketed, and taxpayers absorbed billions of dollars in costs for procedures that were structurally encouraged by Medicare’s own rules.
Medicare also frequently pays vastly different amounts for the exact same medical service depending entirely on where it is performed (e.g., a hospital-owned clinic vs. an independent doctor’s office). This arbitrary pricing structure rewards massive hospital consolidation and drives up patient costs without providing a single ounce of additional medical value.
The Blueprint for Reform: How to Restore Integrity
Catching fraudsters after the money has left the building is a losing battle. True reform requires structural policy changes that align financial incentives with accountability and honest value.
Policymakers and agencies like the Centers for Medicare and Medicaid Services (CMS) must prioritize the following legislative and regulatory actions:
- Enforce State Financial Accountability: CMS must aggressively withhold federal funds from states with persistently high improper Medicaid payment rates. If states face real financial penalties for failing to verify enrollment eligibility, they will naturally clean up their programs.
- End Zero-Premium ACA Plans: Congress should require every ACA exchange enrollee to make a meaningful, out-of-pocket premium contribution. Eliminating fully-subsidized plans immediately destroys the financial incentive for corrupt brokers to create phantom enrollments.
- Tighten Identity and Income Verification: Strengthen the automatic re-enrollment safeguards, impose severe penalties on deceptive enrollment intermediaries, and mandate rigid income verification up front before advanced subsidies are paid out.
- Fix Medicare Pricing and End “Pay-and-Chase”: Medicare must move toward site-neutral payment policies so that the government pays the same price for a service regardless of the facility type. Additionally, CMS must deploy real-time AI and predictive data modeling to flag impossible billing patterns before claims are paid out.
Conclusion
The American healthcare crisis cannot be solved simply by throwing more taxpayer money into a leaking bucket. True program integrity requires fixing the broken, open-ended structures that make fraud highly profitable and completely predictable. Protecting both American patients and the taxpayers who fund their care depends on a system designed for value, transparency, and fiscal sanity.
