The Minnesota Medicaid embezzlement scam remains headline news because of its scope and because the culprits were part of a single immigrant group from Somalia. Officials estimate as much as $9 billion taxpayer dollars were stolen from 14 Medicaid programs primarily in Minnesota but also in Ohio and Maine. The FBI is investigating potential Minnesota connections with terrorist organizations in their home country.
Eliminating third-party payment … restores free market forces to healthcare and makes fraud such as the Somali embezzlement impossible.
While the magnitude of the fraud, the Somalia connection, and the possible complicity of Governor Tim Walz are often discussed, emphasis ultimately lands on the immigrant miscreants: single-country, purposefully non-assimilated, Muslim Somali community.
But while immigration policies clearly play a role in this, analysis seems to start and end with the who as though assigning blame is what matters. What is most important is developing a strategy to assure this will never happen again. To do so requires in-depth knowledge of how they pulled off such a big heist.
Embezzlement of the magnitude of the Somali Medicaid fraud does not occur in other markets. It cannot happen when the buyer or consumer is also the payer, expending personal funds out of pocket to pay the seller directly. Buyers naturally keep close watch on spending — it is their money — making sure they get what they paid for.
Somali-like, industrial-level fraud can only exist in a third-party payment environment where consumers or buyers are not payers. They don’t know and don’t care how much money is expended on their behalf. After all, it is OPM (other people’s money.) The services or goods for which Somali third parties fraudulently took government funds were either never provided or were a tiny fraction of what was contracted. Childcare centers were empty. Autistic children received no treatment. Food was never delivered. When asked for documentation, a Somali daycare manager claimed burglars had stolen all their “important papers.”
The How
It is the financial disconnection of buyer from seller by a third-party payer that facilitated embezzlement on a scale perpetrated by Somalis. In the typical (free) market, millions of individual buyers hold millions of individual sellers accountable because buyer is payer, expending personal funds paying the seller or provider directly. When a single payer such as the federal government spends $911 billion in one year (2025) through one agency (Medicaid), it is impossible to keep track of where a few hundred million or even a paltry billion (0.1 percent) goes.
As the late great Senator Everett Dirksen (R-IL) once quipped, “A billion here, a billion there, sooner or later you get to some real money.”
The third-party payment system explains how the Somalis could rip off billions of taxpayer dollars. Passing more regulations or harsher penalties for fraud will not prevent a recurrence.
The only way to stop large-scale embezzlement is by reconnecting individual buyers with individual sellers, making health care buyers the payers. In other markets, where buyers shell out their own money, fraud may still occur at retail, but not on a wholesale basis.
For buyers (of health care) to be payers, they need adequate sums of money. That is readily possible. Follow President Trump’s advice and “give the money to the people.” But the money we refer to are not the measly $1,500 offered by Republicans or even the ACA subsidies “enhanced” by the Biden administration.
For the last 84 years, American workers — last year 165 million — were denied full wages. The average loss last year was $25,572 per employee, which is the amount employers sent to insurance companies as so-called “employer-sponsored health benefits.” This is an obsolete, market-distorting wage freeze accommodation from World War II that was never repealed. If workers receive full wages and put the $25,000 in a tax-free, no-limit HSA, they can shop for care and insurance. They will keep careful track of their money, assuring that no seller (or third-party) can get away with fraud, such as receiving payments but not providing services.
Eliminating third-party payment — the “Empower PATIENTS” approach — restores free market forces to healthcare and makes fraud such as the Somali embezzlement impossible.
READ MORE from Deane Waldman:
A Thanksgiving ‘What-If’ for American Healthcare
Subtext to Shutdown: Unaffordable Healthcare
Deane Waldman, M.D., MBA is Professor Emeritus of Pediatrics, Pathology, and Decision Science; former Director of Center for Healthcare Policy at Texas Public Policy Foundation; former Director of New Mexico Health Insurance Exchange; and author of 14 books; latest is “Empower Patients – Two Doctors’ Cure for Healthcare.” Follow him on X.com @DrDeaneW or contact him at dw@empowerpatients.info.
