Spritzophrenia

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Posts Tagged ‘medicaid fraud’

How Bad Is Welfare Fraud in the USA?

Posted by spritzophrenia on January 4, 2011

What do you see when you see someone on welfare? A lazy welfare Mom living the good life, claiming more than she is entitled to? After all, we all know that welfare fraud is rampant, right? In my previous post we’ve been having good discussions trying to identify what’s wrong with the USA, and the issue of welfare fraud came up. I was curious to find out how much of a problem it is.

What I discovered is that accurate figures are hard to come by; worse, grossly inflated figures are sometimes quoted. For example, a 2003 allegation claims child care fraud was found in 69% of the investigations conducted (the original link is broken and I can’t check if anyone challenged the figure). However, the speaker was at the time the head of a collective of profit-making fraud investigators. It would be in their interests to inflate fraud figures.

Check out my follow-up article with more statistics on welfare fraud

The Los Angeles Times reported in 2010 that 24% of new welfare applications in San Diego County contain some form of fraud. However, this statistic was misreported and the actual figure is probably considerably lower. The figure “includes both intentional misrepresentations and unintentional errors, such as information being taken down incorrectly by the county.”

By comparison, two years ago in the UK 56,493 people were caught defrauding the benefit system. This sounds like a lot, but if we consider that in in 2009 5.8 million were on the unemployment benefit alone, this means that less than 1% of all beneficiaries committed fraud.

welfare kids

Well, maybe they don’t find all the fraud. This is certainly true, but if a full-time staff of 3,000 fraud investigators cannot find it then maybe there isn’t much more to find? It’s hard to compare the UK with the US– the American system might be much easier to rort. However, this seems unlikely. If nothing else, at least the UK example shows that is is possible to have a welfare system where almost no fraud occurs.

I’d also like to see good numbers on the seriousness of the crime. Someone who is getting an extra $2 per week they are not entitled to is not exactly high rolling, yet it would still be counted as fraud. Sure, there have been a few notable cases but my point is that these are extremely rare.

The most accurate figure I’ve found for the US is from a 2002 report by The US Department of Labor which says that 1.9% of the total Unemployment Insurance payments for 2001 were attributable to fraud or abuse within the UI program.

For accuracy, we should note a couple of things: This figure only reflects unemployment insurance. It’s conceivable that other types of welfare could have different fraud rates. Secondly, this figure concerns the amount defrauded, not the number of people guilty. Unlike the UK figure it doesn’t tell us how many people took the money. But it’s not hard to do some simple math. In 2001, $580 million in overpayments were identified as fraud. At the time there were 2.38 million US people receiving unemployment insurance. If every one of them was defrauding the system, they’d get an extra $243 in their pocket that year. They won’t exactly be living the high life on that. Even assuming 1% of these people were fraudsters, each of them got $2436 extra that year. That’s a significant, but not extreme amount. The math shows the more people who defrauded the system, the lower the payback. The penalties are high, and the Government has full-time fraud investigators hunting the bad guys. Fraud is only worth considering if you can make serious money. Therefore it seems intuitively right that the percentage of people committing welfare fraud is low.

So, until someone can show me better numbers I’m going to put this out there:

Less than 2% of all people on welfare in the USA commit fraud.

“The myth of the Cadillac-driving welfare queen who defrauds the system lingers even though there’s no proof of it”, said Erin O’Brien, a poverty expert at the University of Massachusetts, Boston.

In fact, welfare fraud among Philadelphia’s 95,456 recipients is “minute,” according to Peter Berson, assistant chief of the government fraud unit in the Philadelphia District Attorney’s Office.

The 200 to 400 cases of welfare fraud in the city each year – down 50% since 2002 because of better enforcement and fewer recipients – are not nonworking women having babies to game the government, but working women receiving welfare and working at other jobs without reporting the income, Berson said.

In conclusion, the rate of welfare fraud is so low as to almost not be worth mentioning. The next time you hear an allegation of welfare fraud, ask to see the hard facts. Anecdotes are just that, and urban myths develop quickly. In hard times, Americans blame the poor.

The facts tell me that 98 out of 100 people on welfare are not defrauding the system. Ninety-eight out of one hundred welfare recipients you meet are honest people who are struggling. Isn’t it time we dropped the stigma?

Edits: April 2012. There have a been some good comments below, including discussion about the “definition of fraud”. And there have been some, let us say, more ignorant comments.

Check out my follow-up article with more statistics on welfare fraud.

April 2012: A really good NY Times article Welfare Limits Left Poor Adrift.

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