President's Budget Gets Serious About Cutting Waste, Fraud, and Abuse
Update: the tables in this post have been updated with estimates from CBO's analysis of the President's FY 2020 budget. CBO does not provide specific estimates for administrative proposals.
President Trump has long called for reducing waste, fraud, and abuse in federal programs. In the past, this call has been met with only vague proposals – if any – to reduce improper payments. The President's latest budget, however, includes a number of concrete and specific policies to improve program integrity. By our estimate, these policies could save or raise as much as $300 billion over a decade, and they should be on the table as part of any deficit reduction or offset discussions.
The President's focus on reducing improper payments goes back at least as far as the campaign, when he called for waste, fraud, and abuse reduction efforts in Medicare, Medicaid, the VA, the military, Unemployment Insurance, Social Security, the tax code, and a variety of other domestic programs. In his early budgets, the President also called for $150 billion of unspecified reductions in improper payments, including over $50 billion per year by the end of the decade.
In the past, we've been critical of these proposals, which have assumed very high savings and offer little-to-no detail of how they will be achieved. The President's budget for Fiscal Year (FY) 2020 is different – it includes dozens of specific provisions designed to reduce improper payments, combat fraud, and improve program integrity.
Using our own judgment of what policies should be classified as improvements in program integrity, we identified 44 proposals in the President's FY 2020 budget that would generate significant savings from reducing waste, fraud, abuse, and improper payments. These savings total $296 billion – about $215 billion on the spending side and $81 billion on the tax side.
We categorized each of these policies as falling into one of three general categories:
- Administrative Program Integrity Changes ($57 billion): These provisions use executive authority to change the way the federal government runs certain programs to make them more efficient and accountable.
- Legislative Program Integrity Changes ($101 billion): These provisions use legislation to reduce the amount of improper payments in certain programs or eliminate clearly identified loopholes that allow those programs to be abused in ways not originally intended.
- Policy Changes Aimed at Improving Program Integrity ($138 billion): These proposals involve actual changes to policy that appear to be designed to close loopholes, improve program integrity, and restore various programs or policies to their intended purpose.
Below, we itemize each policy and describe them broadly. We focus only on policies that the Office of Management and Budget (OMB) scored with a significant fiscal impact.
Administrative Program Integrity Changes
Four major provisions in the President’s budget would address waste, fraud, and abuse through changes to program administration, saving the federal government nearly $57 billion over the next decade according to OMB.
The provision that would save the most by far in this category is one that would allow for more frequent eligibility redeterminations for Medicaid beneficiaries. By enabling states to reassess whether current beneficiaries still meet eligibility standards more than once each year, this policy would ultimately result in fewer Medicaid beneficiaries, saving the federal government an estimated $46 billion over the next ten years. Improving and rationalizing income reporting for disability programs would save another $11 billion.
|Proposal||Ten-Year Savings (millions)|
|Allow states the flexibility to complete more frequent Medicaid eligibility redeterminations||$45,600|
|Improve income and asset reporting for SSI and SSDI||$11,000|
|Address over-utilization and billing of DMEPOS under Medicaid by expanding prior authorization||$300|
|Allow revocation and denial of Medicare and Medicaid provider enrollment based on affiliation with a sanctioned entity||$78|
Legislative Program Integrity Changes
We found 35 provisions in the President’s budget that save or raise federal dollars by directly strengthening program integrity and reducing waste, fraud, abuse, and unintentional overpayments. Based on OMB's estimates, enacting these provisions would save the federal government $101 billion over the next ten years.
More than half of those savings – nearly $56 billion – come from provisions designed to reduce the “tax gap," which is the difference between the amount the government is technically owed each year in taxes and the amount it actually collects. According to the latest data from the Internal Revenue Service (IRS), between 2008 and 2010 the gap averaged slightly above 18 percent of taxable revenue, or $458 billion per year. The President's budget would reduce this gap by better funding IRS enforcement, giving the IRS more authority to correct errors on tax returns, and making several other changes.
The budget would save another $20 billion by improving program integrity in payments to health care providers – including by requiring pre-payment authorization for services that have been particularly susceptible to fraud, requiring states to closely track and investigate personal care service providers, and to automatically deny personal care service claims that appear duplicative or fraudulent, among other changes.
The budget claims an additional $13 billion from reducing improper payments in Social Security and the Supplemental Security Income (SSI) program (mainly through better state pension reporting), $4 billon from reducing improper or unintended higher education payments, $2 billion from improving enforcement of enrollment in health care services, another $2 billion from reducing improper payments in nutrition assistance programs, and $5 billion from other measures that reduce improper payments or improve program integrity.
|Proposal||OMB Ten-Year Savings (millions)||CBO Ten-Year Savings (millions)|
|Reduce the Tax Gap|
|Increase funding to the IRS for tax enforcement||$32,525||$27,336*|
|Allow the IRS more flexibility to address correctable errors||$17,426||$298|
|Reduced improper payments from strengthening enforcement of law requiring SSN that is valid for employment in order to collect the EITC, CTC, and additional dependent credit||$2,949||$1,478^|
|Improve clarity for worker classification and increase reporting requirements for certain contractors and the self-employed||$2,165||$763|
|Increase oversight of paid tax return preparers||$507||$165|
|Reduce Improper Payments to Health Providers|
|Require states to deny certain personal care Medicaid payments for duplicative or inappropriate services||$8,670||No Estimate|
|Require prior authorization for certain Medicare items prone to fraud||$6,260||$0|
|Strengthen CMS’s ability to recoup Medicaid improper payments||$4,420||No Estimate|
|Prevent inappropriately low manufacturer drug rebates||$347||No Estimate|
|Require debtors to pay collection fees for CMS overpayments not repaid within 60 days||$200||-$45|
|Improve SSI and Social Security Program Integrity|
|Improve Social Security collection of state and local pension information||$9,509||$3,426|
|Increase overpayment collection threshold for Social Security||$1,518||$1,291|
|Replace SSI's in-kind support offset with a flat reduction||$648||$227|
|Expand mandatory electronic filings of W–2s||$319||$38|
|Exclude SSA debts from discharge in bankruptcy||$274||$161|
|Eliminate Worker's Compensation reverse offsets||$207||$204|
|Use Customs and Border Protection data to reduce improper Social Security and SSI payments||$181||$0|
|Expand SSA's authority to recover improper payments collected on behalf of deceased beneficiaries||$46||$28|
|Hold fraud facilitators liable for Social Security overpayments||$10||$0|
|Reduce Improper and Unintended Higher Education Benefits|
|Use combined income to determine student loan repayment rates for married borrowers filing separately||$3,771||$905|
|Use tax data to verify Pell Grant and student loan eligibility||$177||$0|
|End Pell grants for those who continuously collect grants without earning school credits||$38||$0|
|Improve Enforcement of Enrollment in Health Care Programs|
|Require documentation of satisfactory immigration status before receipt of Medicaid benefits||$2,310||$1,095|
|End exchange subsidies for those over 30 days late paying premiums||$78||$286|
|Penalize providers and suppliers without updated enrollment records||$32||-$14|
|Reduce Improper Payments for Child Nutrition and SNAP Programs|
|Enact other child nutrition and SNAP program integrity measures||$1,188||$1,410|
|Require schools to verify eligibility for 8% (up from 3%) of school lunch beneficiaries||$483|
|Provide technology grants to reduce school lunch payment errors||$44|
|Conduct SNAP data matching between receipts and store owners||$40||$0|
|Other Measures to Reduce Improper Payments and Improve Program Integrity|
|Improve Unemployment Insurance program integrity||$2,233||$210|
|Strengthen child support enforcement||$1,856||$166|
|Increase collections of delinquent Federal non-tax debt||$320||$0|
|Reform the Federal Employees’ Compensation Act (FECA)||$220||$166|
|Increase and streamline recovery of unclaimed assets||$60||$0|
Policy Changes Aimed at Improving Program Integrity
While "waste" and "abuse" are somewhat subjective terms, we identified five concrete policy changes in the President's budget that we believe are aimed specifically at aligning programs with (at least what the Administration views as) their intended goals or making fraud and abuse less likely to occur. Unlike the provisions from the previous category, these provisions involve actual changes to policies underlying certain programs rather than just improvements in payment accuracy; nevertheless, they appear to be targeted toward improving program integrity, at least in the Administration's view. Altogether, these provisions would save the federal government $138 billion over the next ten years.
The provision that would save the most out of this category is one that would require taxpayers to include a Social Security Number (SSN) valid for work for themselves and their dependents in order to claim the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), and the credit for other dependents. An SSN is already required in order to claim the EITC and CTC; however, not all SSNs are valid for employment. Prior to 2003, the Social Security Administration would issue SSNs to noncitizens who were not authorized to work in the United States so they could do things like obtain drivers licenses or open bank accounts. By limiting eligibility for these tax credits to only those with SSNs valid for work, OMB estimates this provision will raise $39 billion of revenue and reduce $29 billion of refundable outlays. Of that $68 billion in overall savings, $3 billion would be from reducing payments to those not entitled to the these credits under current law; the remaining $65 billion would represent a change in policy to restrict availability of the credits to those with legal status to work in the United States.
The budget would save an additional $42 billion by closing what some view as loopholes within the current food stamps (SNAP) program. One of those loopholes – known as "categorical eligibility" – allows states to provide SNAP benefits to households with incomes above the federal maximum threshold for eligibility by making them eligible for benefits in another low-income assistance program, the Troubled Assets for Needy Families (TANF) program. Current law makes recipients of TANF benefits automatically eligible to receive SNAP benefits. Like SNAP, the TANF program has a maximum income threshold for eligibility to receive cash benefits. However, states are allowed to provide very inexpensive, non-cash benefits to households above that threshold, for example brochures or referrals to a telephone hotline. These technically count as TANF "benefits," meaning that any household that receives them automatically becomes eligible for SNAP benefits. The President's budget proposes limiting categorical eligibility for SNAP to those who receive TANF cash benefits. The budget would also require the Department of Agriculture to use actual heating and utility costs when determining overall housing expenses of beneficiaries, as opposed to applying a flat "standard utility allowance" to all beneficiaries.
One proposal with broad-based support from experts would pay all hospital-owned physician clinics the same Medicare rates as physician-owned clinics. Prior to 2015, it was common for hospital-owned physicians practices located off a hospital’s main campus to receive a higher Medicare payment rate than practices not owned by hospitals. While this discrepancy was corrected in the Bipartisan Budget Act of 2015 for new facilities, it grandfathered in existing facilities. This provision would eliminate that inequity entirely, resulting in the same Medicare payment rate for all physicians practices regardless of who owns them, which would save the federal government $29 billion over ten years.
Finally, the budget would save more than $2 billion by disallowing concurrent receipt of Social Security Disability Insurance (SSDI) and Unemployment Insurance (UI) benefits. Current law allows workers with disabilities receiving SSDI benefits to also receive UI benefits, even though the former is meant for people who are unable to work while the latter is meant for people actively looking for work. This proposal was also included in several of President Obama's budgets.
|Proposal||OMB Ten-Year Savings (millions)||CBO Ten-Year Savings (millions)|
|Savings from strengthening enforcement of law requiring SSN that is valid for employment in order to collect the EITC, CTC, and additional dependent credit||$64,971||$32,555|
|Restrict SNAP categorical eligibility based on receipt of TANF cash benefits||$30,295||$11,490|
|Pay all hospital-owned physician offices located off-campus at the physician office rate||$28,660||$14,010|
|Repeal the SNAP Standard Utility Allowance and instead base heating/cooling allowance on actual costs||$11,441||$11,200|
|Offset overlapping unemployment and disability payments||$2,288||$1,550|
To be sure, some of the policies in this last category will be controversial. And some of the other proposals we discuss above may be administratively difficult or designed imperfectly.
But with deficits projected to total over $11 trillion over the next decade and calls for new spending and tax cuts gaining traction, deficit reduction and offset ideas are more important now than ever. Program integrity cannot possibly solve all our fiscal problems, but it is a good place to start.
By getting much more specific about how to reduce waste, fraud, and abuse in federal spending and revenue programs, the Trump Administration’s latest budget request provides several ways lawmakers can reduce deficits without changing policies. These policies, along with ones the Government Accountability Office (GAO) releases on ways to reduce waste, fraud, and abuse, represent good first steps towards fiscal responsibility.