Since they pay some of the highest taxes in the United States, New Yorkers may wonder where all that money goes. The answer, increasingly, is Medicaid.
Spending on the joint federal- and state-funded program has soared nationwide in recent years, but especially in New York, where, in 2025, state and federal expenditures reached $115 billion. Over 33 percent of state residents are enrolled, and per-capita spending exceeds that of every other state.
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Some of this spending is driven by fraud—a major topic of public debate since Christopher Rufo and Ryan Thorpe’s City Journal exposé on Minnesota sparked a federal “war on fraud.” In New York State alone, fraudsters have stolen hundreds of millions of dollars from Medicaid over the past decade. And only last week, Mehmet Oz—who helms the federal Centers for Medicare and Medicaid Services—announced an anti-fraud probe of the state’s Medicaid system that could result in funds being frozen.
But the story of New York’s Medicaid system is also about new (and old) political coalitions, corporate welfare dependency, and political incentives that reward efforts to expand program eligibility as widely as possible. As a federal funding crunch and new spending demands place an even greater burden on the state budget, these perversities are becoming too serious to ignore.
New York’s Medicaid program is no stranger to fraud. Consider the recent $68 million case in which two Brooklyn-based individuals pleaded guilty to paying kickbacks to patients, whom they then billed for services neither rendered nor required. In some instances, these “patients” were not even in the country. In 2024, the Department of Homeland Security announced that it was investigating the case for possible money laundering, suggesting parallels with the recent Medicaid fraud schemes in Minnesota, where fraudulently obtained funds ultimately ended up in the hands of terrorists.
Or take the $348,000 fraud prosecuted in 2018, in which a man living in New York claimed to be caring for his ailing mother in Manhattan. In reality, the mother was living in Bangladesh. Whenever inspectors showed up to investigate, the fraudster’s brother somehow managed to pass himself off as their sick mother. How about the 2025 New York Post story about an employee of a company handling payroll for Medicaid patients’ health aides who was prosecuted for misdirecting funds into offshore accounts?
What these and many other cases have in common is their connection to the state’s Consumer Directed Personal Assistance Program (CDPAP, pronounced “cee-dee-pap”). While every state runs some form of Medicaid home-care service that allows those who suffer from chronic illness to hire personal aides, New York’s is especially expansive. Some of its high costs are attributable to fraud: one report found a potential $10 million in unauthorized, likely exaggerated hours billed to the state for Medicaid-related services yearly.
CDPAP’s rationale is sound, in principle. Since Medicaid reimbursement rates on nursing homes in the state average $383 per day, advocates claim that paying for in-home care at a rate of $20.65 per hour might save money in cases where patients don’t require around-the-clock attention.
But in practice, the program’s structure makes it particularly vulnerable to fraud. Since most people have little familiarity with managing employee payroll, insurance, and taxes, a third-party “fiscal intermediary” handles these tasks and receives reimbursement from the state. This introduces another layer through which funds can—and have been—misdirected.
New York is not alone in this. The federal Medicaid Inspector General’s office reported that more than 40 percent of Medicaid fraud convictions over the past decade involved personal care services like CDPAP.
But in New York, the problem got so bad that politicians could no longer ignore it. That was thanks in part to Covid-era provisions that expanded Medicaid eligibility in New York City alone by nearly 1.1 million people from 2020 to 2023, and in part by the fact that, since 2016, beneficiaries could hire their own relatives. Between 2018 and 2023, the program tripled in cost, climbing to $9.1 billion.
Governor Kathy Hochul tried to remedy the situation by quietly including a line in her 2024 budget saying the state would seek “savings.” One of those savings was to consolidate the estimated 600 to 700 fiscal intermediaries in use, switching the state to a single company, Public Partnerships, LLC (PPL) in April 2025.
Hochul’s office claimed that the move would reduce “waste and abuse,” presumably owing to economies of scale and greater data oversight. But evidence soon emerged showing early contact between PPL and officials in the New York State Department of Health—activity that state lawmakers allege is indicative of fraud and that, according to the New York Post, federal prosecutors could soon be investigating further.
It’s easy to blame these spiraling problems on fraud. But dig deeper, and the distinction between outright fraud and politicized incentive structures becomes blurry.
CDPAP, for example, grew in part because fiscal intermediaries aggressively advertised on social media, television, and even the Gotham subway. This, in itself, is not illegal, however questionable it may seem. And it implies that much of the program’s growth came from populations that were, in fact, eligible.
Furthermore, an expansion of CDPAP in 2012 gave beneficiaries the ability to hire friends and family members. It’s easy to see how this contributed to the program’s growth by adding to its appeal: those who might previously have been reluctant to take up care in an institutional setting or accept care provided by strangers suddenly found their range of options expanded.
A 2024 article published by Michael Kinnucan of the left-leaning Fiscal Policy Institute provides further context: the growth of consumer-driven care (such as CDPAP) reflects Medicaid patients’ preference to switch away from agency-based care. That model, in which aides are hired and provided by an agency, offers patients fewer choices than CDPAP, which allows them to choose and hire their own aides. Accounting for this switch, total home-based care, measured by hours, has increased by 26 percent in New York between 2018 and 2023, a more modest figure than the 1,200 percent growth figure sometimes cited.
Nevertheless, growth in both hours and spending has significantly outpaced the number of users. Growth in utilization resulted from a political decision to expand the number of recipients. That growth was, in turn, driven by the sort of entrenched constituencies that government programs like CDPAP and Medicaid tend to create.
For example, in September 2024, Crain’s New York Business reported that 1199SEIU, the union that represents health-care workers and backed Governor Hochul’s move to consolidate the fiscal intermediaries, was seeking to unionize home health aides (the employers of whom are Medicaid beneficiaries). The union declares the protection and expansion of Medicaid a core priority and has shown itself willing to act on it, having blocked rush hour traffic in 2023 to demand, “in the spirit of Dr. King,” that Hochul boost wages for home care workers and “close the Medicaid coverage gap.”
Other lobbying groups whose advocacy focuses on Medicaid recipients, rather than workers, exercise similar influence. For example, the New York Association on Independent Living, in response to Hochul’s comment about CDPAP having become a “racket,” countered by saying that it was a “way of life.” And the Consumer Directed Personal Assistance Association of New York State (CDPAANYS) continues to support “stakeholders such as people with disabilities . . . and individuals who fervently believe in CDPAP.”
The expansion of Medicaid results in such organizations collecting public dollars; those public dollars in turn reinforce their lobbying ability; and the cycle continues.
Finally, apart from fraud and incentive structures, a political will exists to expand Medicaid. The very fact that Medicaid can reimburse home health care is owed to federal Medicaid waivers, which allow “State Medicaid funds to be used in ways that are not otherwise allowed under federal rules.”
In New York State, lawmakers have championed the use of such waivers, like the 1115 waiver, through which Medicaid funds get used for a range of services only loosely connected to health: job training, cooking supplies, utility maintenance, and so on. As noted in an article by the Paragon Health Institute, these waivers are one of the primary drivers of Medicaid spending; reforms were made in last year’s One Big Beautiful Bill requiring budget neutrality.
Who benefits from this expansion? I was surprised to learn, from one surgeon whom I spoke with about his experiences with Medicaid, that the increased spending nationwide hasn’t flowed to physicians and doctors. Data from the Federal Reserve Bank of St. Louis show that in 2025, the fees that physicians received for providing Medicaid services have shrunk relative to 2014, accounting for inflation.
The answer therefore lies elsewhere. Most of the growth in spending has come from expansions in patient eligibility and the types of services they can access.
The result is an obvious absurdity: 45 percent of New York City is enrolled in Medicaid, despite the fact that program eligibility requires an income below $21,597 for a single individual; $36,777 for a single parent with two children; and $44,367 for a couple with two children under 18. In many cases, the eligibility threshold falls far below the annual minimum wage of $35,360 (based on full-time work at $17 per hour).
This widespread reliance has real economic consequences. Workers competing in the marketplace grow more willing, perhaps even eager, to accept fewer hours, knowing that Medicaid already covers their health insurance and that earning more could push them above the eligibility threshold and leave them worse off.
New York’s Medicaid system is a bellwether for the nation. Endemic fraud, increased spending, expanded coverage (particularly in home health care), and unheeded official warnings about unsustainable growth are emerging in many other states, as well.
The probe that Mehmet Oz has announced into New York’s Medicaid program will require the state to provide “detailed documentation about [its] fraud detection, program integrity infrastructure, managed care oversight, and corrective actions.” It’s a welcome move. But most of New York’s spending on Medicaid isn’t driven by fraud, and there seems to be little political will to restore the program to its original mandate of providing health insurance to the truly needy.
Doing so would be transformative. Less fraud would mean less waste; less waste, lower taxes; and lower taxes, more investment and job creation, leading to wages high enough that employers no longer rely on Medicaid to make up for low pay. If New York were brave enough to lead in restraining Medicaid’s growth, the rest of the country might follow.
Photo by Zach D Roberts/NurPhoto via Getty Images