Some perspective on Food Stamp fraud

Households that receive benefits from the Supplemental Nutrition Assistance Program (SNAP, formerly the Food Stamp Program) usually fly under the radar, but recently they've received a lot of unflattering (and misleading) attention.

For example, an article in the Washington Examiner was breathlessly headlined "Maryland, Virginia at top of nation for food stamp fraud."

Maryland ranks second and Virginia fifth in the amount of taxpayer dollars wasted on food stamp fraud.

For every $100 in benefits, Maryland gave out $6.11 to people who weren't eligible -- amounting to about $60 million, according to fiscal 2010 data from the U.S. Department of Agriculture. Virginia gave out $5.04 to ineligible recipients, or about $70 million, and the District ranked 21st, doling out $3.76 in overpayments. The national average was $3.05.

But local investigators are examining a shrinking percentage of recipients for fraud -- and very few offenders are prosecuted -- even as government spending on the welfare program, which helps needy families pay for groceries, soars to record highs.

Analysts say fraud is increasingly going undetected, as most states have fewer resources to devote to the oversight of food stamps for more than 45 million Americans.

Earlier this week, Republican presidential candidate Newt Gringrich reportedly said

...more Americans today get food stamps than before. And we now give it away as cash -- you don't get food stamps. You get a credit card, and the credit card can be used for anything. We have people who take their food stamp money and use it to go to Hawaii. They give food stamps now to millionaires because, after all, don't you want to be compassionate?

The stories by the Washington Examiner and Mr. Gingrich suggest that there is rampant fraud in the SNAP program. It might surprise both of them to learn that administrative errors and fraud in the SNAP have decreased substantially over time and now appear to be at record lows. In 2010 the GAO reported

The national payment error rate reported for SNAP, which combines states’ overpayments and underpayments to program participants, has declined by 56 percent from 1999 to 2009, from 9.86 percent to a record low of 4.36 percent.

The administrative error rate for FY 2010 in the SNAP was lower still at 3.81 percent. The error rate is a problem, but it is much lower than other organizations. For example, improper payment errors in the Medicare fee-for-service program in 2011 were 8.6 percent, and errors in the Medicare Advantage program were 11 percent. And even these error rates are far lower than rates for major private health insurers, which the American Medical Association estimated were 19.3 percent in 2011.

In contrast to the implication by the Washington Examiner article, the fraud rate is different from and much likely lower than the error rate. Administrative errors occur for many reasons, including case-worker errors. In FY 2009, 843,000 suspected SNAP fraud cases were investigated by state authorities. Only about a quarter of these were determined to actually involve fraud, and the amount of fraud identified came to just over $100 million (compared to total overpayments of $1.8 billion).

Trafficking in SNAP benefits also has decreased; the 2010 GAO report indicated that

FNS estimates indicate that the national rate of food stamp trafficking declined from about 3.8 cents per dollar of benefits redeemed in 1993 to about 1.0 cent per dollar during the years 2002 to 2005.

Over this same period, the SNAP became much more efficient. In FY 2003, $5.0 billion, or 19 cents out of every dollar spent on SNAP, went to administrative overhead. By FY 2009 (the last year for which full figures are available), the overhead rate had fallen to just under 12 cents per dollar. The available evidence* indicates that the overhead expense rate is now closer to 10 cents. Again, some perspective is worthwhile. Private health insurers have complained that overhead caps of 15 to 20 percent (Medical Loss Ratio minimums of 80-85 percent) under the Affordable Care Act are too onerous.

The improvements in program performance have come at a time when the SNAP has expanded significantly. In the year before the expansions under the Republican-signed 2002 farm bill, the SNAP (then Food Stamp Program) served 19.1 million people. In FY 2010, it served 40.3 million.

It's questionable whether additional administrative expenses in the SNAP would be worthwhile. In FY 2009, the states and federal government spent $6.6 billion administering the SNAP, while the total estimated overpayments were $1.8 billion and the total estimated underpayments were about $0.4 billion. At this point, each additional dollar of administrative expenses seems to reduce the value of administrative errors by less than a dollar.

A program that serves 40 million people is going to turn up some problems, including some egregious ones. Indeed, errors and abuses in the SNAP cost taxpayers and potential recipients billions. Nevertheless, the available evidence indicates that the SNAP run with less proportional administrative cost, with fewer proportional errors, and lower rates of fraud than other private and public programs.

While we can't say for certain how many people are taking unfair advantage of the SNAP, we can identify two: the Washington Examiner and Newt Gingrich.

* States and the federal government share the expenses of administering the SNAP approximately 50-50. For FY 2010, we have the federal expenses but not the state expenses. The federal overhead rate was approximately 5 cents per dollar.