The $1 Trillion Blind Spot: Fraud, Welfare, and the Hidden Cost of Government Aid

think about what does federal government do that I think about it and has to repent and

“make think about it and because it's security, something that eclipses both of those”

things in size is "eade to state" program. I meant the bulk of this is welfare and the bulk of the intern is Medicaid. Federal government currently delivers more than one trillion dollars per year to state local governments. This is a number that has been growing considerably faster than the size of the economy for quite some time now. And unfortunately, one of the largest problems we have is the accountability. So for

example, if there is a charity in work with or donate to that could be, say a religious organization could be local feedback. It could even be a larger national charity.

Americans are capable of achieving extraordinary things when they have the freedom

and opportunity to do so. This is American potential. Welcome to the American

“potential podcast I'm your host Dave from. So we're going to be talking about”

housing on this next episode and you know, really the challenge that a lot of younger people, not so young people are having about a forting housing. So man, you live in rural Colorado. And you're in that demographic of millennials who, you know, are having a hard time for a forting a home. What's your experience in those of your friends like? Well, and you know, I looking at a lot of what some of my

friends have experienced and have gone through, you know, and I'm at least speaking for sort of the younger end of the millennial generation now. And it's it's affordability. A affordability has just been a major problem when it comes to buying house. It's houses are really expensive, but so is everything else. So when you look at your ultimate budget, the amount of house you can get if you can get house a house is not a lot.

And at least here in Colorado, you know, a few years ago, I saw, there was a lot of, uh, there were a lot of challenges with both availability and price prices were high. And then availability was low. I mean, there would be a house that would go for sale. And 100 people would go check it out immediately. And within a few seconds, it was under contracts. You couldn't even get the house. Now at least here where I'm at the availability is kind of, uh, there's there's at

least a little more of it. But those prices are just sky high again and at least speaking for people in my age range, it is a big topic. It's something we talk about a lot. Go alongside that. Um, um,

you know, I want to home for 21, 22 years, a few different homes. And housing issues have never

been the top of my list of things I get me really animated. But I was meeting with the team of ours, American prosperity team. And they were talking about their legislative agenda coming up and what they were working on the state legislature. And one of the young, really sharp guys, mid 20s, he wanted to keep spoke up and said, I want to work on our housing issue or housing reform policy. And I was like, man, that seems weird. Like, why? You know, and then the other

young people in the room, like, yeah, no, I'd love to be involved in that too. And the reason this is that it's what they're living. They're in their lives, right? Now their experience is like, I can't afford a home. And I can't kind of take that next step and what we could always consider

“the American dream of being a homeowner. And that's why they were going to work on it. And that's”

one of the reasons why we're working on housing reform policy throughout the nation and say, legislature, throughout the country. So when you donate to charity or tie it to a church, you're really saying, I trust you to use them anyway wisely. And if it isn't, you usually stop giving. But with taxes, we don't get that choice. The government takes it share before we even see our paychecks. So when you see headlines of fraud happening with taxpayer funder programs in different

states, it's beyond frustrating. But the real question is, how bad could this be? Well, let's find out with our guests today, David Ditch, who is a senior analyst for the Economic Policy Innovation Center, otherwise known as Epic. David, thanks for joining us. Thanks for having me. Thanks. Well, hey, tell us what the Economic Policy Innovation Center, Epic Duts. Epic's been around for a little over two years. We focus on trying to provide quality policy solutions to

directly to capital Hill based on the needs, both what's going on legislatively. Also, what are some of the biggest problem facing the country? Well, I guess trying to provide good economic policy solutions to capital Hill is a badly-needed niche that you're filling then. It's definitely need for that. We were able to be very hands-on during the crafting of

We're trying to do much the same this year on issues like appropriations and the

“course coming highly bill. It's fabulous. Yeah, and I know, I mean, Epic has been a great partner”

to Americans for prosperity. So I'm happy for us to kind of do our distinct things, but also, you know, at the end of the day, we want us to be the same policies realized. And so it's been a great partnership, but I'm thrilled to talk about maybe I shouldn't say thrilled, maybe that's wrong word here. I'm excited to dive into some of the work that you've done and analogy you can bring forward about what we've heard in the news about so many waste fraud and abuse at a really

incredible scale where charities are really abusing the system and taking federally-funded money

and totally misappropriating it. So I kind of wanted to step back and start with, you know, characterizing the what programs are out there with the federal government does with regard to aid-to-state programs. So, you know, generally how much does a federal government spend on aid to to state programs, you know, at that our current state? This is one of those things.

“I think almost entirely flies under the radar when people think about what does federal”

government do do? I think about national defense and I think about something you've also security, something that eclips us both of those things in size is aid-to-state programs. Wow. Now, the bulk of this is welfare and the bulk of the intern is Medicaid. If federal government currently delivers more than $1 trillion per year to state local governments, this is a number that has been growing considerably faster than the size of the economy

for quite some time now. And unfortunately, one of the largest problems we have is with accountability. So for example, if there is a charity that you work with or donate to, that could be, say, a larger organization, it could be local food back. It could even be a larger national charity.

“If that charity is doing something bad with your money, your good chance you're going to find out”

about it and you're going to send your money elsewhere. If it's going to a government program, you have no ability to monitor all the $1 trillion, all the different places that money is going to, or even if you break it down in the local state level, you don't know all the different places that the state is sending the money. And unfortunately, in many cases, the states don't have a strong incentive to prevent waste fraud and abuse because so much of it is coming from the federal

government and is there for a quote, quote, "tree" to them? Yeah, so I live the state of Illinois, hardly a bastion of fiscal accountability or responsibility or a freedom or low taxes or anything that we would like to see. And I've seen just, you know, one big beautiful bill or, you know, we call the family worker family tax cut act went through, you know, there's, there's accountability

measures in there that I know you guys worked on, that are basically seeing very common sense

of coal when somebody thinks about them and what we're seeing is that the state, you know, the state government in Illinois for instance was like, "Busier draconian, these are terrible, people are going to starve." What we're, and I know Medicaid is part of this, too, what were, what are those programs that are, that have tried to instill more in accountability in these state programs, the federally funded state programs that were in the working family

tax act or elsewhere? So the, the welfare reforms in this package were the largest in, frankly, possibly in the history of the world. Wow. If you, we can go back to the 1990s, there was a very famous welfare reform that was enacted, you know, a compromise between the publicans in Congress

and then President Clinton, which saved about $100 billion, it was credited with helping to push

people, offer welfare rules and into work, helped the 90s economic boom-let to be a little more productive. Unfortunately, over time, certain welfare programs weren't very reformed or certain reformes sort of fell by the wayside. Now we need, we needed to do welfare reform 2.0, so to speak. The one-day beautiful bill package included reforms to both Medicaid and to supplemental nutrition program or food stamps, which are designed to, uh, geode states strong incentives to reduce improper

at the state and local level. So, uh, one of the things that I think has been very misunderstood,

there is this, um, talking point that these reforms have led to dramatic cuts to the programs. The fact of the matter is that these programs are now going to be better tailored, better focused on the truly needy, but also in particular for the Medicaid program, it's not a matter of an absolute spending reduction, it's a matter that the rate of gross has been lowered. Despite these reforms, Medicaid spending is still going to be higher every single year moving forward.

It's just, it's going to be growing about a line with the economy rather than growing twice as fast as the economy. So, Medicaid is essentially, uh, funding so that the neediest,

“lowering comforts can get healthcare, right, just so that that's what it pays for. Yeah.”

But, you know, there's some, there's some real fraud taking place there. Can you kind of talk about that, and maybe if you have any examples of what's going on there? So, uh, the sort of official

estimate for improper payments in Medicaid is around $30 billion dollars per year.

The fact should be serious money, although here in the swamp, it's not. However, on my colleague, Rachel Grustler along with Brian Blaise of the Parade on Health Institute, did some analysis, they believed that the true scale of fraud and the Medicaid program might be closer to $150 billion per year. Um, it should be determined how much that will be reduced by the reforms that were passed last year. However, unfortunately, I don't believe those reforms

“are going to, I don't think it's possible for any handful of reforms to address a problem”

that's at that large of a scale. Um, there was a resource that I was made aware of in the last couple of months. Um, in, uh, 2025, the Department of Justice, uh, released a, uh, national healthcare fraud take down report, um, and it highlighted different instances of Medicaid fraud that are being

prosecuted, uh, the largest of which, um, a Pakistani man, uh, was charged with, uh, 650 million dollar

scheme, uh, related to substance abuse treatment, uh, being performed out of Arizona, um, a man in California was charged with $269 million dollars in fraud. You know, when we think about fraud schemes, we might think about numbers that are literally one month thousands that much, you know, hundreds of thousands of dollars was a big scheme. So what are they doing in that fraud? Like what

“specifically are they doing to commit fraud? They're submitting, uh, fraudulent requests to state”

government saying that we provided this service to this person at this time when, in fact, in many cases, no service was provided or perhaps, you know, they provided a small service, but then they're adding additional services that they claim were provided. State governments are paying for these court and court services, and then the federal government is reimbursing the vast majority of the cost. And again, this is the number one reason why this is a problem. If this was all coming out

of pocket of state governments, because state governments have to be accountable for every tax dollar because state governments can't run up a massive deficit every single year the way the federal government can. They have incentives in other parts of state government to be a lot more economical to be a lot more cautious to make sure there is not widespread fraud. But when the federal government is covering 70, 80, 90% of the cost depending on the particulars of a given Medicaid

patient, there is much less incentive and, in fact, in many cases, state governments actively desire to increase the amount of money that goes out the door in Medicaid because they view it as an economic stimulus because of how heavily they're being reimbursed by Wachman B.C. Wow. So, is this also similar to what we saw in Minnesota, and I've started to see in California and other places we started seeing the news, a number of kind of sensational, like really unbelievable schemes to just

keep taking in the federal money into different states and then using it for fraudulent purposes, is the same kind of program? Yeah, and what's happening, we're seeing in places like Minnesota

will find multiple different avenues for committing fraud against the federal governments. For example,

“it could be a combination of Medicaid and food stamps and different social programs related”

to children. So, for example, there are programs related to child care, or programs related to education. And again, it's the same thing where there is either you can swiftly fraudulent bills being submitted to the state governments or just padded bills. The children might not be going to a particular child care center, or they might only be going a couple hours a week with their state governments being billed for a large number

of hours for every civil one of these children. And again, there is a set of reforms that are coming down the pike. There are forms that are passed last year are going to be implemented over the course of a few years. However, unfortunately, there is more work that does need to be done

“because there are still some holes in the system. Certain policies weren't able to be”

worked into the package given the push to pass a bunch of life forth. In other cases, there were certain things that were still sort of, we're fully baked in terms of legislative taxed, which is one of the reasons why we at Epic are really hoping that Congress will pass a second reconciliation package this year. Wow, that would be great, because I know this was an historic bill, but there is definitely more than these to be done because it's such a giant

problem. So let's move over to Snap, the Supplemental Nutrition Assistance Programmer Food Stamps. You wrote an article that shared some stories about the Department of Justice prosecuting people, what's that story and what's the deal with how we are looking at reforms with Snap and what

else needs to be done. So we're looking at around $100 billion of food stamps spending in fiscal

year 2024 and an estimate of about 9 billion in proper payments, they get 9 billion dollars, is real money if you look at it in terms of the average household. It's going to be tens of thousands of households worth of economic productivity and just as an example, the federal government charged a scheme where it's not only a group of people, but also a federal employee who works in the anti-fraud part of the food stamp program. They defended the government between $66 million and again,

“if you want to think if it was $600,000 or $6 million, but $66 million, just from a relatively small group of”

people, that is the scale of fraud that was possible given how much money flows through these programs.

This is not always easy to detect. One of the things that's important to keep in mind is that

race fraud and abuse, some of it is legal and some of it is legal fraud, but some of it is what I would call legal fraud. So programs like food stamps are set up with a very clear purpose if we're helping this advantage, the needy, the vulnerable, and yet if they're poorly designed or poorly implemented, these programs are often ending up benefiting people who are well off. In some cases, millionaires are able to benefit from food stamps. So one of the largest problems is

broad-based categorical eligibility. A lot of words, what does that mean? What it means is that if someone needs a handful of criteria independent of things like assets and income, they're deemed automatically eligible. So for example, someone who receives some form or government other form of government assistance, whether it's a housing or energy assistant, as deemed to be automatically available for food stamps, this the definition of assistance

can be gained by a state's viewpoint where if someone receives an informational pamphlet on available benefits, that pamphlet is deemed a benefit in and of itself, and therefore someone

who can be living in a $2 million house and qualify for food stamps just for receiving a pamphlet.

And again, the state governments are willing to play these types of games are willing to tolerate this kind of abuse, this kind of legal fraud, because the money is primarily coming from the federal government, and then it's being spent in the state and local grocery stores.

which they would never go along with if they were covering the full freight.

Totally. There's, yeah, there's different incentives that work there and definitely lack of accountability. So the work of failing tax, I know had some reforms here that some of the states

“really cried bloody murder about, but could you describe what those common central forms were?”

Some of the reforms are having to deal with just, you know, again, targeting the improper payment levels, targeting some of the eligibility rules. So for example, their eligibility rules relating to working. And in this case, it's not even work. There's a phrase they use called community engagement, which is some combination of work and volunteering and even education. You're doing these types of activities for just 20 hours per week, 80 hours per month or so.

You can call it and your income is still low, you can qualify for these benefits. Again, to need this is common sense. If you ask the typical American, should someone who doesn't work, doesn't try to work just sits around at home, should they be

“getting welfare ends capable of a worker should also add, there's the work capability aspect of”

that should they be on welfare, the person's going to eat most Americans are going to say heck no, we should be focusing the programs on people who are pregnant women or mothers of young children, the disabled, rather than the work capable who are actively choosing not to do anything with their wives. And again, the states are not expected to implement these reforms, these eligibility changes overnight. It's going to take a couple of years in some cases to get things

off the ground. However, when the congressional budget office was calculating, who is likely to be to no longer be receiving benefits from Medicaid, from food stamps, it is entirely groups of people such as legal immigrants, work capable of all sorts of we're choosing not to work or people who do not meet other kinds of eligibility requirements such as they make too much money, we're going to be using access as opposed to people who really

have no alternative but to receive welfare. So let's share over to another department,

“HUD, the Department of Housing and Urban Development, what would they have you discovered there?”

So for HUD, I'd have roughly $50 billion in annual rental assistance.

They are estimating that about $5.8 billion in questionable payments are floating around and again, this is one of those tricky things. You is every dollar questionable payment fraudulent. There is similar term improper payments is every dollar of improper payment with fraud and abuse. In some cases, yes, in some cases, it can be a little murky. It's one of the problems when the programs are being implemented at the national scale in the country,

the United States, it's almost impossible to identify exactly how much fraud is going on. Yes, there are many instances in which people are receiving housing benefits that shouldn't be eligible. So for example, someone might be receiving housing assistance, they might pass away, but then someone is still living in that residence collecting those benefits on behalf of

the deceased person, and this isn't always easy for agencies to detect because

one agency is in charge of collecting certain data and another agency is charging the collecting, other data, they don't always communicate with each other. So they don't always know, for example, if someone has passed away or if someone has moved and should no uncle be receiving benefits for that particular residence. So again, in some cases, people are receiving housing payments from our government to cover housing costs in multiple locations.

The Biden administration did something when it came to child care providers, this has been kind of a flashpoint in the news over the last few months, you know, initially in Minnesota and then other other states where child care providers seem to be a kind of a favorite entity to try to execute this fraud. So what did the Biden administration do when it came to

thing you're checking in terms of is a child care provider doing what they're doing is attendance

checks and yet the Biden administration in 2024 issued a rule that weakened attendance verification making it much easier to commit fraud. Fortunately, this is one of the many very destructive Biden administration rules that the Trump administration is targeting for reform, but unfortunately, it's not like on day one, they issue a new contrary rule. There, they have to go through an entire rulemaking process. Unfortunately, the federal government is a big shift and when you're trying

to change course, that those kinds of shifts take a long time to shift. But do you feel like the Trump administration, are they doing a work by rulemaking? Or is it really more through congressional action that they're trying to get their hands around some of this waste front

“abuse? Yeah, I think it's absolutely, it's a combination of the two things. So for example,”

last year, whenever the negotiations about what would be in the one-day beautiful bill act, the president could have said, no, I don't want anything else just past the tax cut, but no, he was comfortable. He understood that conservatives in Congress really wanted to

promote a lot of reforms that would slow the growth of a federal spending, because ultimately,

the true cost of government is what it spends over and above what it taxes. He was comfortable with

“it, and that's why we ended up getting both the tax cuts and welfare reforms. So he was”

supportive of the welfare reforms and at the same time, they have been implementing actions in some cases, making reforms that have been needed for some time. In other cases, simply reversing

bad policies implemented by the Biden administration. The bottom line is, more progress was made

in 2025 to reform the welfare state again than possibly any other time in the nation's history. And it is a testament to how bad things got that there's still more work to do even after everything that was accomplished last year. Well, David, I appreciate the work that you and your colleagues at Epic are doing to try to get some sanity here and kind of push some good reforms, a good economic policy. I've been able to watch you guys over the last few years, you know, the

couple years have been in existence and you've been for a young organization and super effective. So I really appreciate the hard work that you're doing. Appreciate that very much. Thanks. Well, folks, if you like this episode and would like to stay connected, be sure to like and subscribe to our channel, as well as follow us on Facebook, YouTube, and Instagram.

“And always remember, Freedom of Liberty are easily taken for granted. Don't take them for granted.”

Go out there and defend Liberty through them. Thanks for joining us and we'll see you on the next episode. Thank you for listening to American Potential. You may listen to more stories from Americans working every day to expand freedom and opportunity in their communities by visiting AmericanPotential.com.