On average, 20 to 25 cents of every $1 spent on four government assistance programs is lost to fraud, Sen. Ron Johnson says

Once a month, the Waukesha County Republican Party hosts "Pints and Politics," a Friday evening gathering at a suburban Milwaukee restaurant that is "open to anyone conservative."

The Milwaukee Journal Sentinel covered the soiree on Jan. 10, 2014, when the special guest was U.S. Sen. Ron Johnson, R-Wis.

When a woman asked Johnson about the Internal Revenue Service enforcing provisions of the Affordable Care Act, he expressed doubt about how effective the IRS would be.

Then Johnson made an allegation about government assistance programs that packed the punch of a beer and a shot.

"Do you realize the average rate of fraud," Johnson asked, "whether it's in the Earned Income Tax Credit or Medicare or Medicaid, across the board, food stamps -- the average rate of fraud in those programs is 20 to 25 percent?"

Fraud is sobering stuff. It’s defined as "the crime of using dishonest methods to take something valuable" from someone or something; and as the intentional use of "dishonest means to deprive another" of money, property or a legal right.

Are errors made in the programs Johnson cited -- people who aren’t eligible still getting benefits, or getting more than they should?

Sure -- tens of billions of dollars worth per year.

But in terms of fraud, there’s no evidence the rate in the four programs is anywhere near 20 or 25 percent.

Johnson’s response

When we asked for evidence to back Johnson’s claim, Johnson policy advisor Patrick McIlheran told us the senator meant error rates in the various programs, not actual fraud.

"The former is of interest to taxpayers, the latter is a matter for prosecutors," McIlheran said in an email.

The next day, however, Johnson conceded he had erred -- even though he continued to use the term fraud.

In a statement, Johnson said that when he made his claim, he was "primarily referencing fraud" in the Earned Income Tax Credit program.

But, he added:

"I made too broad a generalization to other mandatory spending programs based on reports in the press and from colleagues that are not supported by other inspector general reports. I strive hard to convey accurate information that is fully supportable, and I was mistaken in making this overly broad generalization," the statement read.

"This inaccuracy, however, should not detract from the larger point I was trying to make: Fraud is a significant and serious problem."

Johnson cited a U.S. Government Accountability Office report which said that in 2011, federal agencies estimated that $115.3 billion in improper payments were attributable to 79 programs spread among 17 agencies.

The error rate was 4.7 percent.

So, the senator admits his claim is false; let’s see just what the numbers are.

Before we review each of the four programs Johnson singled out, it’s important to note the difference between fraud and error rates.

As Malcolm Sparrow, a specialist in corruption control at Harvard’s Kennedy School, told PolitiFact National, fraud and improper payments are far from identical.

"There is a serious problem with conflating these different types of overpayment," he said.

We found that reviews done by federal agencies, as well as by independent offices such as inspectors general and the U.S. Government Accountability Office, do not cite rates of fraud. Rather, they document or estimate error rates -- how often benefits in various programs are overpaid or underpaid.

Such improper payments can include instances of actual fraud, but by and large they cover errors, which can be made by government workers, service providers such as physicians, and by the benefit recipients themselves. Some of the errors could be intentional, such as a taxpayer claiming a credit he isn’t eligible for, but the nature of fraud makes it very difficult to quantify. In other instances, a caseworker might mistakenly arrange benefits for someone who isn’t eligible.

Food stamps

The U.S. Department of Agriculture, which administers the food stamps program, said 3.8 percent of benefits were paid in error in 2011, according to a factcheck done by PolitiFact Texas in June 2013. The error rate covers both overpayments, including fraud, as well as underpayments. Caseworker mistakes, rather than fraud, were the primary cause.

Six months later, we found, the USDA reported the error rate dropped to 3.42 percent in 2012, an all-time low.

Medicare

Another June 2013 factcheck, by PolitiFact National, found Medicare has an improper payment rate of 8 to 10 percent.  

We found that the improper payments rate for Medicare, the government health insurance program for Americans age 65 and older, was 10.1 percent in 2013, up from 8.5 percent the previous year, according to the U.S. Department of Health and Human Services.

Fraud makes up a relatively small portion of the improper payments, according to the factcheck done by PolitiFact National. More common are improper payments that are the result, for example, of a doctor ordering too many tests, or providing a service but submitting the wrong payment code.

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As for fraud in Medicare, "there are no reliable estimates" on how often it occurs, the U.S. Government Accountability Office said in an October 2013 report.

Medicaid

The rate of error payments in Medicaid, the federal-state health insurance program for the poor, is lower than it is for Medicare.

The U.S. Department of Health and Human Services estimated overpayments and underpayments for Medicaid totaled $21.9 billion in 2011, an error rate of 8.1 percent, according to a March 2013 report from the U.S. Government Accountability Office

A different GAO report said Health and Human Services estimated error payments of $19.2 billion, or 7.1 percent, in 2012. That report notes that improper payment estimates reported by federal agencies "are not intended to be an estimate of fraud."

Note: A 2012 study published in the Journal of the American Medical Association offered three estimates of fraud (not error rates) in the Medicare and Medicaid programs: a low of 3 percent, a medium of 6 percent and a high of 10 percent.

Earned Income Tax Credit

The Earned Income Tax Credit gives a federal income tax credit to low- and moderate-wage workers. A taxpayer who gets the credit could owe less in income taxes or receive a larger tax refund.

A February 2013 report from the U.S. Treasury’s inspector general said the IRS estimated that 21 to 25 percent of the payments it made in the program in 2012 -- between $11.6 billion and $13.6 billion-- were issued improperly.

The IRS said faulty payments result from a variety of causes, including the complex nature of the law, the shifting EITC-eligible population and the nature of the credit.

Eight months later, the inspector general said the estimated error rates were understated.

And it bears repeating: these are error rates, not rates of fraud.

Our rating

Johnson said: "The average rate of fraud" in the Earned Income Tax Credit, Medicare, Medicaid and food stamps programs "is 20 to 25 percent."

Improper payment rates are in the 20 to 25 percent range in the tax credit program -- but are 10 percent or less in the other three programs. So, even the average among the four programs would be far less than what Johnson claimed.

More importantly, those are error rates; there are no figures on the rate of fraud, which is believed to be a small component of errors. Johnson’s remark to the group was grossly misleading.   

For a claim that is false and ridiculous, we give Johnson a Pants on Fire.

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