June 25, 2026
The Honorable John Joyce
Chair
Subcommittee on Oversight and Investigations
U.S. House Committee on Energy and Commerce
Washington, DC 20515
The Honorable Yvette Clarke
Ranking Member
Subcommittee on Oversight and Investigations
U.S. House Committee on Energy and Commerce
Washington, DC 20515
Dear Chair Joyce, Ranking Member Clarke, and Members of the Subcommittee,
National Taxpayers Union, the nation’s oldest taxpayer advocacy organization, commends the Subcommittee for examining how fraud risks and oversight deficiencies within state Medicaid programs undermine the interests of both beneficiaries and taxpayers. With total spending on Medicaid now approaching $1 trillion annually, it is more important than ever that lawmakers ensure federal dollars go only to those who are truly eligible and are not squandered on fraud.
Fraudulent and improper payments remain a persistent challenge for Medicaid, which ranks among the top-five federal programs for improper payments according to the Government Accountability Office (GAO). In fiscal year 2025 alone, the Centers for Medicare and Medicaid Services (CMS) estimated improper payments in Medicaid totaled just over $37 billion, nearly a $6 billion increase from the previous year.
Unfortunately, this staggering amount of payment errors is the predictable result of a system that insulates states from responsibility over managing costs. Because Medicaid is structured as an open-ended entitlement, state Medicaid spending automatically triggers federal matching funds. Since states are not bearing the full cost of their Medicaid programs, they have fewer incentives to aggressively police fraud and verify eligibility.
One of the clearest examples of Medicaid’s distorted incentives is the widespread use of provider taxes by state governments. States have figured out they can game the system by taxing providers such as hospitals and then immediately recycling those funds back to the same providers to artificially inflate their reported Medicaid spending. This increased spending on paper, in turn, allows state governments to trigger higher federal matching funds without making meaningful contributions of their own.
Before state governments learned to use the provider tax loophole to pad their budgets in the 1980s, Medicaid was a more balanced collaboration, with states footing just under half of total spending. Today, thanks to the uncontrolled growth of the provider tax scheme and new mandates enacted by Obamacare, the federal government shoulders nearly two-thirds of total Medicaid spending. Amid record federal debt and deficits, this spending trajectory is simply unsustainable. Fortunately, the Working Families Tax Cuts begins to address some of Medicaid’s perverse incentives by imposing restrictions on provider taxes and capping state-directed payments.
While criminal fraud remains a problem, Medicaid’s fiscal challenges are largely the result of financing structures that reward excessive spending. As such, we urge the Subcommittee to consider reforms that give states a greater stake in funding their Medicaid programs. Reducing the moral hazard created by excessive federal matching funds would encourage states to crack down more forcefully on waste, fraud, and abuse. We appreciate the Subcommittee’s leadership on this issue and stand ready to assist in developing solutions that strengthen Medicaid’s long-term viability.
Sincerely,
Alexander Ciccone
Policy and Government Affairs Manager
National Taxpayers Union