Immigration Verification and Welfare Fraud

Testimony to the House State Government Committee

OCTOBER 6, 2010 | Testimony by ELIZABETH STELLE, NATHAN BENEFIELD

Thank you for allowing the Commonwealth Foundation for Public Policy Alternatives, a non-partisan educational institute based in Harrisburg, to submit written testimony concerning HB 1359, which would require proof of citizenship for anyone receiving support from state taxpayers.

While this legislation would impact all state benefits, including state contracts, unemployment compensation, and higher education grants, its greatest impact would be in the Department of Public Welfare, specifically on Medical Assistance programs (Medicaid). HB 1359 would likely result in saving taxpayers millions of dollars by ensuring that all recipients meet legal eligibility requirements.

Since Governor Rendell took office in 2003, General Fund spending on public welfare has ballooned. The FY 2010-11 enacted budget brings the increase in public welfare spending since 2003 to almost 60%.  And this total underrepresents the actual growth, as federal aid has reduced the state share of Medicaid, and not all Medical Assistance spending is accounted for.

Medicaid is both one of the largest, and one of the fastest growing, programs in the Pennsylvania budget. If the current rate of growth continues, Medicaid will consume 94% of the state budget by 2075. 

Further, that pace of growth was before the recent federal health care law, the "Patient Protection and Affordable Care Act."  A recent analysis from the Centers for Medicaid and Medicare Services projects that state and local Medicaid spending will rise 41% next year (largely due to the expiration of stimulus funds) and over 7% annually in each of the following years, due to increased eligibility.

Fraud and abuse in public welfare programs has contributed to this rise in spending.  Prior to Gov. Rendell taking office, approximately 47,000 cases of suspected welfare fraud were referred annually to the Inspector General. However, between 2003 and 2004, the Inspector General received about 29,000 referrals-as caseloads continued to increase. In the past four years, the number of referrals has continued to decline, with 25,802 referrals in 2009.  

This dramatic increase in expenditures and reduction in referrals is especially worrisome given that the Department of Public Welfare is the focus of constant audits and investigations revealing evidence of widespread abuse and waste. From the fraud uncovered by Auditor General Jack Wagner in LIHEAP (including over $500,000 in stolen funds) to constant mismanagement in the special allowances program, the Department of Public Welfare is notorious for lax oversight.

Fraud resulting from payments to non-eligible individuals, including illegal immigrants, is especially acute in Medicaid. In 2009, the Auditor General's office found that DPW failed to make proper eligibility determinations on more than 1,600 randomly selected applications between January 2005 and March 2008-resulting in $3.3 million in payments for a fraction of ineligible recipients. The total cost of this fraud across Medicaid is more likely to be hundreds of millions of dollars. Many of the improper disbursements were due to DPW's failure to verify basic information about the recipient, such as age, disability, and legal status.

By reducing spending on those ineligible for benefits, HB 1359 will help to address the pinch Medical Assistance will have on the state budget, and ensure that the Medicaid program is truly helping those in need.

Estimates of the number of illegal immigrants within the Commonwealth's borders vary. The Pew Hispanc Center estimates about 160,000 undocumented aliens in Pennsylvania, while the Federation for American Immigration Reform (FAIR) estimates 140,000.

Likewise, the cost of providing healthcare to the illegal immigrant population is widely varied. The Center for Immigration Studies claims that, nationally, health care for illegal immigrants cost taxpayers about $4.3 billion annually, and FAIR claims Pennsylvania spends $50 million in total healthcare costs for illegal immigrants. A 2009 Delaware County Times story states that illegal immigrants take about one-half of one percent of the state Medicaid budget, or about $75 million.

The Commonwealth Foundation recognized that the immigration system in this country is broken, and the current channels to U.S. citizenship make it nearly impossible for many immigrants to enter the country legally. Additionally, about two-thirds of illegal immigrants already pay Social Security and income taxes. However, we also understand the importance of the rule of law and observing the established rules regulating immigration.

While we support a streamlined immigration process, we wholeheartedly agree those not abiding by our state and federal laws should not benefit from the welfare system. Legislation like HB 1359 would be one mechanism to help reform our public welfare system to significantly reduce fraud and waste and protect taxpayers.

In addition, we suggest a number of other reforms to help reduce fraud and abuse. Improving Pennsylvania's whistleblower protection law can help ensure transparency and accountability. Eighteen states have whistleblower laws that protect private sector workers who report misuse of government funds. In addition to these states, Georgia protects healthcare workers who report Medicaid false claims, and South Carolina goes a step further, rewarding whistleblowers with up to $2,000 if their information saves the state money. The Commonwealth Foundation supports an approach similar to South Carolina's that would reward both private and public sector whistleblowers who identify those defrauding our welfare system and save taxpayers money.

Another step the legislature should consider is recovery audits legislation. Recovery audits for improper payments can be used to recoup the cost of fraud in state welfare operations. The American Legislative Exchange Council (ALEC) has model legislation implementing recovery audits for improper payments. Recovery audits allow private contractors to audit fraud in Medicaid and other programs, and collect from those cheating the system. Recovery audits are a nationally recognized best practice for disbursements management and improving operational efficiency. Additionally, recovery audits will not cost the state any resources, as the contractor's costs are deducted from any dollars recovered, making the recovery audits self funding. Typically, Medicaid is the largest area where overpayments and fraud are uncovered, but audits have been done in other areas as well.

Perhaps the most important step lawmakers can take to combat costs and fraud is overhauling the state's Medicaid program. Allowing Medicaid recipients to have more control over their healthcare by transitioning to a voucher program would go a long way in improving service. Florida, South Carolina, and Louisiana have already adopted this approach. When individuals have more control over their health care dollars they use medical services more discriminately; likewise, providers have more freedom in treating Medicaid enrollees.

In short, reforms must be taken to ensure taxpayer dollars are being spent appropriately, and limit the ability of some individuals to abuse the social safety net.

Thank you for the opportunity to submit testimony on this important issue. We would be happy to follow up with any questions or additional information you may find useful.

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The Commonwealth Foundation is Pennsylvania's free-market think tank.  The Commonwealth Foundation crafts free-market policies, convinces Pennsylvanians of their benefits, and counters attacks on liberty.


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