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Thousands of protesters gathered in Bryant Park and marched to Madison Square Park in Manhattan as part of nationwide anti-Trump rallies, April 5, 2025, in New York.
One of the most preposterous narratives about Donald Trump’s second term in office is that his administration is engaged in “cost-cutting.” Elon Musk and his DOGE goons are hacking away randomly at the federal bureaucracy, it’s true, but all the salaries of all federal employees combined come to only about 5 percent of government spending. And many of those layoffs are going to lead to increased spending—for instance, massive cuts to the IRS workforce have already reduced tax revenue by an estimated $500 billion this year, which will require the money to be borrowed instead, thereby automatically increasing spending on interest payments (the fifth-largest category in the federal budget).
Sure enough, as John Green points out, total federal spending has steadily increased this year each month—indeed, faster than it did in 2024. Now it is likely to increase yet more, as Trump has proposed a trillion-dollar military budget, and more importantly, released a new reimbursement schedule for Medicare Advantage (the privatized version of the program). Where the Biden administration had proposed a 2.23 percent increase to that program, Trump officials have proposed more than twice that: 5.06 percent, according to The Wall Street Journal.
The Journal estimates that this change will increase annual Medicare spending by $25 billion. But I strongly suspect it will end up being much more than that, because it’s augmented by the Trump administration’s mass layoffs at the Centers for Medicare & Medicaid Services (CMS). Defrauding Medicare just got easier and much more lucrative.
Under Medicare Advantage—which now covers more than half of the seniors in the program—the government pays private companies to insure Medicare enrollees. As we have covered at the Prospect for years now, the program is, at best, a pointless waste of money, and at worst an outright scam. It was set up back in the 1990s at the height of bipartisan neoliberal hegemony, when virtually everyone in power assumed as a matter of faith that business could always operate more efficiently than government, amen.
The problem, of course, is that markets have a lot of perverse incentives when it comes to health insurance. There is every reason to deny coverage to sick people, or cancel their coverage when they are injured, or deny claims out of hand, so as to boost profits. (Before Obamacare, by the way, all three of those tactics were more or less standard practice in the private insurance market.)
So if Medicare Advantage were to pay out a flat fee for every enrollee, for instance, private insurers would scoop up all the youngest and healthiest seniors, stick the government with the sicker and older ones, and cream off fat profits. That’s why CMS operates a gigantic database with individual risk codes for all 67 million Medicare enrollees, indicating how sick they are, and pays Medicare Advantage insurers based on the illness level of their insured population.
Private insurers responded to that by rigging the codes. They pressure doctors in various ways to pile lots of dubious or fake diagnoses on healthy people, so they can get a larger risk-adjusted payout without actually having to fund treatment. This practice cost the government an estimated $50 billion in 2024.
Insurers also falsely deny Medicare Advantage claims. Last year, the Kaiser Family Foundation published a study of claim denials in the program, finding that they increased from 5.8 percent in 2021 to 7.4 percent in 2022. Only about 10 percent of denials were appealed, but of those that were, patients won 83 percent of the time. Plainly, the incentive to invent dubious or fake reasons to deny claims is having the usual effect.
Hospitals have also been caught defrauding all parts of Medicare with similar tactics.
All told, Medicare Advantage enrollees receive about 10 to 25 percent less care than those in traditional Medicare, while costing the government about 20 percent more. Insurers then use that money on a deluge of advertising and high-pressure sales campaigns to convince seniors to enroll in or switch to an Advantage plan, often through outright trickery.
Until now, the government has been playing a game of whack-a-mole with insurers’ attempts to rig Medicare Advantage, and consistently losing. Now, not only are insurers getting a massive boost in their payment rates—almost certainly the product of behind-the-scenes lobbying—but many of those responsible for overseeing the program are being canned. Secretary of Health and Human Services Robert F. Kennedy Jr. has announced sweeping layoffs at the agency, including CMS, which is now run by the charlatan TV grifter Dr. Oz. Particularly hard-hit, reports CNBC, is the Office of Program Operations & Local Engagement, which is responsible for implementing many rules and regulations on Medicare Advantage.
So there will be many fewer regulators looking over the shoulders of insurers and hospitals, and the rewards for cheating the system have been greatly increased. Even if they do get caught—like the hospital conglomerate Sen. Rick Scott (R-FL) used to run, which back in 2000 was fined $1.7 billion for the largest Medicare fraud in history at the time (including, you guessed it, rampant upcoding and fake diagnoses)—they can just run to Trump with a bribe sack full of gold doubloons and get a pardon. It worked for Trevor Milton!
If and when Medicare spending skyrockets along with the budget deficit, and the money vanishes into the pockets of a handful of crooked executives and shareholders, we know who to blame: Donald Trump.
