▶ Key Takeaways
- The modern welfare state is a complex federal government monster that consumes over $1 trillion tax dollars every year.
- Prior to the federal takeover of welfare during the Great Depression of the 1930s, most welfare was provided by families, churches, private charities and local community organizations.
- Seven cabinet departments and six independent federal agencies now fund and administer between 80 and 134 separate welfare programs.
- Fraud and abuse are built-in characteristics and incentives of the welfare system.
- Centralized administration, self-certification, third-party payments prevent oversight and accountability.
- Fraudulent businesses, false claims, inflated billing have occurred in child nutrition and daycare programs, Medicare and Medicaid, home healthcare, the food stamp (SNAP) program, and more.
- Between $250 billion and $500 billion taxpayer dollars are “lost” every year through fraudulent billing and improper payments.
- Poor management and dereliction of administrative duties are not the causes of fraud; more regulation is not the solution.
- Decentralization of the welfare system is needed to reduce and eliminate the fraud incentive.
Whose responsibility is it to care for those who can’t take of themselves?
For example:
- the poor and the destitute
- elderly widows and orphans
- the mentally and physically disabled
In early American history, welfare was provided by families, churches, and by nonprofit “tithe agencies.”
Beginning in the 1930s during the Great Depression, the federal government began to take over welfare.
Ronald Reagan is famous for stating that whenever government attempts to solve a problem, it creates two or three worse problems in the process.
This inevitable fact is a textbook example of what is called the Law of Unintended Consequences…
Here are some of the results of 95 years of government overreach and overspending:
- A national debt of $39 TRILLION – greater than our national GDP
- A projected FY 2026 deficit of $1.9 trillion
- According to the GAO – Government Accountability Office – $186 billion in “improper” (i.e., fraudulent) Medicare/Medicaid payments in FY 2025…
- And between $250 and $500 billion is unaccounted for (i.e., “lost”) every year
- Just under $2 trillion fraudulent government payments occurred between 2018 and 2022[i]
One out of 3 Americans received some sort of government assistance in 2022.[ii]
Here are 7 uncomfortable truths about government fraud that every American needs to know about before the 2026 midterm elections:
1. The modern welfare state has become a complex federal government monster that consumes over $1 trillion annually.
Federal government social welfare spending in the early 20th century was minimal – just 2% to 4% of GDP.[iii]
Most welfare was provided locally by churches, private charities, townships or counties.
Beginning in 1911 with Illinois, some states created “mothers’ pension” programs to allow widows with young children to care for them full-time at home.[iv]
The Great Depression of 1929 to 1939 triggered a federal takeover of welfare across the nation – accompanied by explosive tax increases to pay for:
- The bureaucracy to administer the programs at the federal level
- The bureaucracies at the state and local levels to distribute the block grants from the federal government to the recipients
- The funds left over that actually go to the recipients
The number of federal financial assistance programs mushroomed during the New Deal Era of the 1930s and During the Great Society era of the 1960s.
In 2023, means-tested federal spending on anti-poverty welfare programs consumed $1.6 trillion annually – about 6% of GDP.[v]
This was 26% of the federal budget.
2. Fraud is a built-in characteristic of the modern welfare state
According to the CATO Institute, 7 cabinet departments and 6 independent agencies administer at least one anti-poverty program.[vi]
Overall, the federal government funds between 80 and 134 separate welfare programs.[vii]
The exact count varies year by year according to organization and definition.
Multiple layers of bureaucracy manage and distribute vast amounts of money through a huge number of welfare programs across many government agencies to millions of people.
The problems with such a welfare system are obvious:
- The system relies on a third-party payment structure – the S. treasury
- There is no market discipline and no tracking of funds
- Responsibility and accountability are diffused across several layers of bureaucracy
- There is no way for the managers of the system to measure the results of the programs.
Once a welfare program begins, it never ends – funding keeps increasing every year.
Economist Murray Rothbard argued that welfare programs invite abuse…
Why?
Because the system rewards claiming and granting benefits rather than producing results.[viii]
When income received is disconnected from private free-market transactions, the primary skill of the recipients becomes how to navigate the bureaucratic requirements and game the system.
The natural results:
- False claims
- Inflated billing
- Organized exploitation
Fraud becomes organized, repeatable, and profitable – as the following examples illustrate.
3. Food stamp (SNAP) fraud.
The Food Stamp Program began in 1964.
Its name was changed to Supplemental Nutrition Assistance Program (SNAP) in 2008.
The program is administered and funded by the Department of Agriculture (USDA).
Eligibility requirements vary from state to state – as do effective oversight and fraud detection.
Current Agriculture Secretary Brooke Rollins recently revealed in a post on X that in one unnamed state, 14,000 individuals receiving SNAP benefits were driving Bentleys, Ferraris, Lamborghinis, Porches and other luxury vehicles.[ix]
Rollins wrote, “And this is just in ONE STATE. We need to defend our nutrition programs for those most in need, not for scammers gaming the system.”[x]
Rollins stated in a recent interview that since President Trump took office in January 2025, 4.3 million Americans have been moved off of SNAP.
The Department of Justice (DOJ) has also had a hand in cracking down on SNAP fraud:
- Recently a Massachusetts store owner pled guilty to taking $7 million in fraudulent SNAP benefits.
- The DOJ has charged a Tacoma, Washington store owner with $600,000 in fraud that includes fraudulent SNAP billings.
4. Fraud in child assistance programs.
Independent journalist Nick Shirley brought welfare fraud into the national spotlight last year when he exposed multiple fraudulent child day care centers run by Somali immigrants in Minneapolis.
We wrote about this recently in ”Behind the Somali Fraud in Minneapolis…” Click HERE to read the article.
Feeding Our Future was a fraudulent “nonprofit” created by the Somali community, purportedly to provide meals to thousands of schoolchildren during COVID pandemic when schools were closed.
Through fake invoices and fake rosters of kids reported to have been given meals, over $250 million taxpayer dollars were stolen and went into the pockets of the administrators before funds were cut off in January 2022.[xi]
Early Intensive Developmental and Behavioral Intervention (EIDBI) – a publicly-funded autism services program – was defrauded of $14 million from 2019 to 2024.[xii]
5. Medicare/Medicaid Fraud.
All states have federally-funded Medicaid Fraud Control Units.[xiii]
But some states aren’t prosecuting criminal cases of fraud.
“If they do not aggressively prosecute Medicaid fraud, we are going to turn off the money that goes to these anti-fraud units,” Vice President JD Vance said recently.[xiv]
Here are some examples of fraud in government-funded medical care:
- $1.3 billion in Medicaid funding to California is being withheld due to suspected fraudulent billing patterns uncovered by Dr. Mehmet Oz, administrator of the Centers for Medicare and Medicaid Services.[xv]
- The Centers for Medicare and Medicaid Services suspended payments to 773 hospices and 23 home health agencies based in Los Angeles that are suspected of fraud.
- $259 million in Medicaid payments to Minnesota have been deferred.
Robert F. Kennedy – Secretary of Health and Human Services – recently told the House Ways and Means Committee that hospice fraud in Los Angeles alone has cost taxpayers $5 billion.[xvi]
Dr. Oz said, “We’ve discovered $630 million in billing from folks [in California] who are egregiously the top 5 percent of outliers in billing.”[xvii]
California spends at double the per capita rate of other states for home health services.
California lawmakers are fighting back…
They are seeking to criminalize the exposure of fraud by investigative journalists in California.
Assembly Bill 2624 (AB2624) – dubbed the “Stop Nick Shirley Act” – was introduced in February.[xviii]
Dr. Oz stated, “We would be able to double the life expectancy of the Medicare trust Fund if we could deal with the fraud issues, just in Medicare.”[xix]
6. Fraudulent home healthcare empire in Ohio.
Medicaid has exploded in Ohio.
There are 3,700 companies in the state with ”Home Health” in their name.
Many of them are in Columbus – home to the second-largest Somali population in the U.S.[xx]
Three major Medicaid Home and Community-Based Services (HCBS) waivers have enabled Ohioans to receive federal and state funds for in-home personal care and homemaker services:
- Passport Waiver (1990)
- Ohio Home Care Waiver
- MyCare Ohio (2014)[xxi]
These waivers were designed specifically to provide at-home services for the disabled, and for people over the age of 65.
Cordoba Real Estate Group LLC owns and operates multiple commercial office buildings in Columbus – 7in a row on East Dublin Granville Road.
Their buildings housed 288 businesses which were registered with and which billed Medicaid.[xxii]
Between 2018 and 2024, they charged Medicaid – and taxpayers – more than $250 million.[xxiii]
Many of the 288 businesses are fraudulent – and the ones that aren’t were guilty of fraudulent billing during the 7-year period noted above.
Next week we will describe fraudulent home health care activities in Ohio.
7. The difficulties of stopping and eliminating fraud.
The cause of fraud in government-funded social welfare programs is not poor management…
It isn’t that administrators are failing in executing their duties.
It’s that a welfare system built around large-scale distribution, third-party payment, and centralized administration cannot prevent abuse.
Some of the inherent, built-in problems identified by economist Friedrick Hayek[xxiv] are:
- Lack of knowledge: Centralized bureaucrats can’t acquire the localized, granular, subjective information necessary to verify millions of individual claims across multiple diverse programs.
- Administrators must rely on self-certification using standardized forms.
- Audits and accountability are after the fact, and therefore lack real-time market validation.
- Healthcare reimbursement systems pay providers after services are rendered, making them vulnerable to fabricated or exaggerated claims.
- Child nutrition and social services programs reimburse nonprofits based on reported activity rather than market demand.
In every case, the welfare structure itself encourages overclaiming and discourages rigorous verification.
As programs grow in size and complexity, the information gap widens, and enforcement becomes reactive rather than preventive.
Fraud flourishes in the gaps.
Patrick Frise of the Mises Institute concludes, “Efforts to address fraud typically follow a familiar script. After losses are exposed, some people are prosecuted, governments expand compliance regimes, add reporting requirements, and increase enforcement budgets. These measures may recover some funds, but they rarely alter the underlying incentives. The programs remain large, centralized, and detached from market discipline. Fraud persists.”[xxv]
It sounds hopeless, but it’s not.
The solution is decentralization – a challenging proposition, but not a hopeless endeavor.
What’s Next:
Next week we will look at these additional types of social welfare fraud:
- Fraud at the Southern Poverty Law Center (SPLC)
- Foreign student Optional Practical Training (OPT) fraud
- H-1B visa fraud
- Fraud in COVID pandemic testing and unemployment programs
- More Medicaid fraud in Ohio and other states
And, we will give some workable suggestions for how to drastically reduce and perhaps even eliminate the incentives to abuse the system.
What do you think? Email me at [email protected].
Action:
- As the 2026 midterms approach, research the candidates on your ballot and find out what their position is on eliminating welfare fraud
- Pray for wisdom and guidance in choosing which candidates to vote for. Use our voter guides. Click HERE. Scroll down for links to California, Tennessee, and Judges Nationwide.
- Get my book, The Deep State: 15 Surprising Dangers You Should Know. Read chapter 4 on “The Bloated Bureaucracy: Fat Paychecks, Socialist Ideology, Waste and Inefficiency.” Click HERE to order the book online.You can order the book on Amazon HERE.Or get the audiobook version HERE and on Kindle HERE.You can also get an autographed edition online HEREor by phone at 615-814-6633 (M-F 10 am to 3 pm).You can also send a check for $26.13 (including shipping) payable to Media Specialists and send it to this address:Media Specialists
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FAQs:
Q: What is the main argument of this article regarding the U.S. welfare system?
A. The modern welfare state has become so large and centralized that fraud and abuse are now built-in features of the system rather than isolated problems caused by poor management.
Q: How did the modern welfare state develop?
A. The federal takeover of welfare – care for the poor, the disabled, widows and orphans – began during the Great Depression of the 1930s and expanded during the Great Society and the War on Poverty of the 1960s.
Q: How was welfare provided prior to the federal takeover?
A. In colonial and early American history, welfare was provided families, local churches, private charities called “tithe agencies,” and by local community organizations.
Q: How large is the modern welfare state?
A. Seven cabinet departments and six independent federal agencies fund and manage between 80 and 134 separate welfare programs at a cost of $1.2 to $1.6 trillion annually – about 26% of the federal budget or 6% of GDP.
Q: Why is fraud and abuse built into the system?
A. Centralized administration, third-party government payments, self-certification systems, and multiple layers of bureaucracy weaken accountability and create incentives for abuse.
Q: What are the most common programs that create incentives for fraud?
A. Child nutrition programs, daycare programs, Medicare and Medicaid billing, home healthcare, and the food stamp (SNAP) program.
Q: How many taxpayer dollars are lost to fraud per year?
A. The GAO estimates that between $250 billion and $500 billion taxpayer dollars are lost every year due to improper government payments.
Q: Is there any solution or remedy to the problem of fraud?
A. The best remedy would be to decentralize the management and administration of welfare programs.
About Craig Huey:
Craig Huey is a longtime direct-response marketing strategist and publisher who focuses on the intersection of faith, politics, culture, and economic freedom. He is president of ElectionForum.org and the founder of Creative Direct Marketing Group (CDMG), where his team has tested thousands of marketing variables and earned more than 100 industry awards. Craig publishes commentary at CraigHuey.com and co-hosts media projects that equip Americans to understand what’s happening—
[i] These bullet point figures come from The Glenn Beck Show on May 18, 2026.
[ii] Patrick Frise, https://mises.org/mises-wire/fraud-policy-incentives-modern-welfare-state
[iii] https://www.justfacts.com/socialspending.asp
[iv] https://teachdemocracy.org/online-lesson/how-welfare-began-in-the-united-states/
[v] https://arrington.house.gov/news/documentsingle.aspx?DocumentID=2420
[vi] Michael D. Tanner, https://www.cato.org/cato-handbook-policymakers/cato-handbook-policymakers-9th-edition-2022/poverty-welfare
[vii] Ibid.
[viii] Patrick Frise, op. cit.
[ix] Jack Davis, https://www.westernjournal.com/federal-probe-food-stamp-recipients-driving-lamborghinis-porsches-shocking-numbers
[x] Ibid.
[xi] https://en.wikipedia.org/wiki/Feeding-Our-Future
[xii] C. Douglas Golden, https://www.westernjournal.com/breaking-doj-announces-98-total-arrests-minnesota-fraud-case-85-somali-descent/?utm_source=email&utm_medium=breaking-special&utm_campaign=news-alert&utm_content=2025-12-30
[xiii] https://lists.theepochtimes.com/archive/jWNyENHFO/usJwMxGAB/Ev0bV50ov
[xiv] Ibid.
[xv] Ibid.
[xvi] Harold Hutchison, https://www.westernjournal.com/watch-nick-shirley-confront-california-dems-trying-criminalize-exposing-fraud/ar-AA21HVQQ
[xvii]https://lists.theepochtimes.com/archive/jWNyENHFO/usJwMxGAB/Ev0bV50ov
[xviii] Harold Hutchison, op. cit.
[xix] https://lists.theepochtimes.com/archive/jWNyENHFO/usJwMxGAB/Ev0bV50ov
[xx] Luke Rosiak, https://www.dailywire.com/news/inside-ohios-home-health-empire-7-buildings-288-medicaid-companies-250-million
[xxi] https://www.medicaid.gov/medicaid/section-1115-demo/demonstration-and-waiver-list/Waiver-Descript-Factsheet/OH
[xxii] Luke Rosiak, op. cit.
[xxiii] Luke Rosiak, op. cit.
[xxiv] Patrick Frise, op. cit.
[xxv] Patrick Frise, op. cit.