Criminals exploiting aid agencies in every state, fraud experts warn

The massive fraud in Minnesota’s Medicaid program has been replicated across the country, with criminals taking advantage of the lax policing of aid payments for years, according to fraud experts.

The rip-off of aid programs is happening “in every single state,” said Haywood Talcove, CEO of LexisNexis Risk Solutions, a fraud-prevention firm that advises more than 9,000 federal, state and local agencies.

“The level of fraudulent activity is varied by program, as well as some states,” he told The Washington Times, adding that every state has some level of “leakage” or financial losses due to fraud.

“New Hampshire is a good example. They just do a better job at stopping fraud. But every state has leakage,” Mr. Talcove said. “The states like California, New York and Massachusetts have massive leakage compared to the national averages, just because they’re so forward on their benefit programs.”

According to Mr. Talcove, criminals trade “state hit lists” and rank which states have the weakest ID checks, fastest payouts, and lowest audit risk; Minnesota has been on those lists for years.

He said state officials often ignore the fraud because it’s mostly federal, not state dollars.

“There’s really very little financial impact on the state, unless in certain programs there are some state cost-sharing,” Mr. Talcove said.

The fraud in Minnesota is estimated to top $9 billion, and the scandal this week prompted Gov. Tim Walz, a Democrat, to end his reelection campaign.

The alleged theft of Medicaid funding for child care centers drew national attention just before New Year’s in a viral video by YouTuber Nick Shirley, which was shared by Elon Musk, Vice President J.D. Vance and Attorney General Pam Bondi.

A criminal probe is underway, and the Trump administration is vowing a nationwide crackdown on fraud in state aid agencies.

President Trump has said the fraud schemes in Minnesota involving Somali residents are relatively minor compared with those in some other states. 

“Can you imagine they stole $18 billion?” Mr. Trump said on New Year’s Eve at Mar-a-Lago. “That’s just what we’re learning about. That’s peanuts. And California is worse, Illinois is worse and sadly New York is worse.”

“We’re going to get to the bottom of all of it,” the president said. “It was a giant scam.”

In Minnesota, the Medicaid theft hit housing programs as well as child care benefits.

Chris Edwards, an expert on state and federal budget issues at the libertarian Cato Institute, noted the ease with which criminals exploited Minnesota’s Housing Stabilization Services.

The HSS Medicaid-funded benefit was intended to help people with disabilities, mental illnesses and substance abuse issues find housing. However, the program did not pay for housing but paid consultants to supposedly find housing.

“In one scam, two Philadelphia residents heard about theft opportunities in Minnesota and registered as HSS providers in the state,” Mr. Edwards writes. “They allegedly tried to loot $3.5 million from the program by finding low-income individuals whose names they could use and creating fake documentation for services supposedly provided.”

Minnesota launched the program in 2020, estimating that it would cost $2.6 million annually, but the actual costs skyrocketed to $21 million in 2021, $42 million in 2022, $74 million in 2023, $104 million in 2024 and were set to hit $122 million in 2025.

According to Mr. Talcove, the fraudsters use a similar playbook across programs by using shell providers and fake rosters.

They bill fast, collect faster and disappear before anyone audits. The same people who ran COVID-19 unemployment fraud pivoted to child care, then Medicaid and then housing.

“You need synthetic identities. You need fake kids for the day care. You need fake patients for home health care. You get those on the internet,” Mr. Talcove said, who in 2020 raised early alarms about the pandemic fraud. “The next thing you need are shell entities, just entities to put the businesses in. It’s really simple to create … and then it’s payment monetization. You have to be able to move the money.”

He said that state officials often ignore the fraud because they think it does not negatively impact the state financially.

“I think the fundamental problem starts with federally funded and state-administered,” he said. “I’ll never forget speaking to an appointed secretary at the state level who said to me, ‘Even if there is fraud, I don’t really care, because the money goes back into the local economy.’ And my comment back was, ‘No, it doesn’t. It’s actually going overseas.’

“Finally, what these criminals do is, and I think I’m stealing this word from Elon Musk, it’s ‘suicidal empathy.’ They pick on programs that draw your heart out. ‘How could you not help working parents who need day care. How could you not give money to hungry people through EBT? How could you possibly deny a poor person health care, or how do you not give somebody unemployment insurance?’”

• Mallory Wilson contributed to this report.