Feds Blow $100 Billion Annually on Incorrect Payments

The Fiscal Times

Between 2002 and 2012, federal agencies spent more than half a trillion dollars ($688 billion) on payments that should never have been made. 

Every year, according to their own recordkeeping, the agencies that administer major federal programs are now paying out more than $100 billion dollars improperly, and even though they’re aware of the problem, they recover only a tiny fraction for taxpayers. This adds up to huge losses for the U.S. Treasury.

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In 2012 alone, the Office of Management and Budget gathered data on just 13 high-error programs in the federal government, and determined that they made a combined $101.3 billion in improper payments. To put that in perspective, that’s almost $16 billion more than the highly controversial budget sequester wound up cutting from government spending in 2013.

The government doesn’t get a whole lot of that money back. In July, then-Controller of the Office of Management and Budget Daniel I. Werfel testified in a Senate hearing that over the preceding two years, the government had recaptured only $2 billion in improper payments.

To be clear, the term “improper payment” covers many problems and is not limited to out-and-out fraud. It can include payments made in error, either through the fault of the agency itself or the person claiming the payment. But what the vast majority of the instances of improper payment have in common is that they represent money that shouldn’t be paid out at all leaving the Federal Treasury and not coming back.

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As part of their annual financial reports, federal agencies are required to estimate the payment error rate of the programs they administer, and for some of the biggest benefits programs, the percentage of payments deemed improper reaches double digits, and tens of billions of dollars.

The prime offender in fiscal 2013 was the Department of Health and Human Services. According to its 2013 financial report, the agency estimated that across seven of the programs it administers, it paid out $55.9 billion improperly.

Last year, 10.1 percent of the payments made under Medicare’s Fee for Service program, which is administered by the Center for Medicare and Medicaid Services, were determined to be either errors or the result of fraud. The result was a net improper payout of $33.2 billion.

Payments made through Medicare Part C, a supplementary insurance program, were improper 9.5 percent of the time in 2013, for a net loss of $6.9 billion, while payments through Part D, for prescription drugs, were wrong in 3.7 percent of cases, costing the agency another $1.4 billion.

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CMS also manages payments for Medicaid, which had an improper payment rate of 5.8 percent for a total loss of $13.5 billion in 2013.

CMS spokesman Tony Salters emailed a statement about the overpayment problem saying, “Deterring improper payments is a top priority of CMS in order to protect beneficiaries and taxpayers. CMS will work with our contractors to develop an appropriate cumulative payment threshold that considers costs, as well as potential benefits in determining which claims and providers should be selected for further scrutiny.”

Salters explained that the improper payment rate is determined by examining a random sample of a particular program’s payments and extrapolating the error rate to the program as a whole.

Asked what the agency does to recoup improper payments, Salters said CMS doesn’t even attempt to recover all of its estimated overpayments. When improper payments are identified in the random sample, he said, agency contractors attempt to recover it, and get “most” of that money back. However, the improper payments identified in the sample represent only a fraction of the total amount paid out incorrectly.

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At the time this article was posted, CMS had not respond to a request for data on the percentage of improper payments that it actually recovers.

Other HHS programs did not post the same eye-popping dollar figures, but still had alarmingly high error rates. The Children’s Health Insurance Program had an improper payments rate of 7.1 percent, costing $624 million, the Foster Care and Child Care programs had error rates of 5.3 and 5.9 percent, respectively, costing $56 million and $260 million each. All three are overseen by the Administration for Children and Families.

One of the leading voices in Congress on the issue of improper payments has been Delaware Sen. Tom Carper, the Democratic chair of the Senate Committee on Homeland Security and Governmental Affairs. Legislation Carper sponsored in 2010, the Improper Payments Elimination and Recovery Act, was signed into law and strengthened the requirements federal agencies have to comply with when reporting improper payments.

In a statement provided to The Fiscal Times, Carper said, “The good news is that the overall level of improper payments in the federal government is down this year, and I am encouraged that this trend has continued over the past few years, with a $14 billion drop since 2010. That being said, we shouldn’t rest on our laurels given that the overall level of improper payments is still too high. It is clear that Congress has to work with the Administration to curb overall improper payments, especially in the Medicare program.”

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While HHS may hold the current-year record for the amount of money paid out improperly, the prize for highest error rate goes to the Internal Revenue Service, which oversees the Earned Income Tax Credit program. In 2012, the most recent data available, the IRS posted a 22.7 percent error rate in EITC payouts, equal to $12.6 billion in improper payments.

Another major offender is the Department of Labor, which administers the federal Unemployment Insurance program – much in the news recently because of controversy over how to pay for an extension of benefits for the long-term unemployed. The UI program posted a 9.32 percent error rate in Fiscal 2013, and improperly paid out $6.2 billion.

Jason Kuruvilla, a spokesman for the Labor Department, said that Unemployment Insurance eligibility can be confusing to recipients and that improper payments are “often caused by misunderstandings.” Some recipients who find work, for instance, believe they remain eligible for payments until they receive a paycheck from their new job. In fact, they lose eligibility as soon as they begin working again.

The Department of Labor is, in at least some respects, a success story when it comes to recovering overpayments. According to data on the Department’s website, the department is able to recover about 25 percent of its improper payments.

Another arguable success story is the Department of Agriculture’s Supplemental Nutrition Assistance Program, commonly known as Food Stamps. The program reported $2.5 billion in improper payments in fiscal 2013, a considerable sum to be sure. The 3.42 percent error rate reflected not just an improvement over the previous year, but an all-time low for the program, which cost $82 billion last year.

Follow Rob Garver on Twitter @rrgarver

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