New York spent $7.6 million in Medicaid managed care payments on behalf of people locked up in state prisons — and the federal government wants its money back.
The revelation highlights ongoing challenges states face in coordinating data between correctional systems and healthcare programs, a problem that has persisted even as both federal and state governments have invested heavily in modernizing their enrollment and eligibility verification systems. Medicaid managed care, which covers millions of low-income Americans through private insurance companies contracted by states, relies on accurate and timely enrollment data to ensure taxpayer dollars are spent appropriately.
A federal audit uncovered the improper payments, which went to managed care organizations on behalf of 1,375 incarcerated Medicaid enrollees between January 2021 and December 2024. The federal government’s share of the tab was $6.1 million.
Federal law prohibits the use of Medicaid funds to pay for healthcare services for incarcerated individuals, with limited exceptions for inpatient hospital stays outside correctional facilities. This longstanding policy reflects the principle that state and local correctional systems, not the federal-state Medicaid partnership, bear responsibility for healthcare costs of people in their custody. The prohibition is intended to prevent duplicate payment streams and ensure clear accountability for prisoner healthcare.
The U.S. Department of Health and Human Services Office of Inspector General is now recommending New York return that money to the federal government.
The audit found that New York didn’t remove people from Medicaid managed care after they entered prison — even when the state received notification that an enrollee was behind bars. This represents a breakdown in what should be a routine administrative process, where corrections data triggers disenrollment from managed care plans, though individuals may remain suspended in the broader Medicaid system pending their release.
“We determined that the State agency did not always disenroll individuals from Medicaid managed care after receiving notification that an enrollee was incarcerated.”
In one example, an individual remained enrolled in managed care for 23 months while incarcerated. Monthly payments were made on the person’s behalf the entire time.
Under managed care arrangements, states pay insurance companies a fixed monthly amount per enrollee regardless of whether services are actually used. This capitated payment model means that New York was paying premiums month after month for individuals who were ineligible to receive services through the plans, representing a clear waste of federal and state resources.
Auditors said New York has systems designed to identify Medicaid recipients who entered prison, but those systems didn’t consistently match incarceration and Medicaid records. The state blamed system limitations and COVID-19 overrides for some of the payments.
The pandemic period brought extraordinary disruptions to normal Medicaid operations, including federal requirements that temporarily prevented states from disenrolling people during the public health emergency. However, those protections were intended to maintain coverage for eligible individuals during a health crisis, not to continue payments for incarcerated people already barred from Medicaid-funded services under federal law.
Discrepancies in personal information — names and dates of birth — could prevent the state from matching records and flagging an incarcerated person as ineligible for payments. Such data quality issues are a common challenge across government agencies, where variations in how information is recorded in different systems can prevent automated matching processes from working as intended.
The Inspector General noted that its review focused on managed care payments and didn’t determine whether the individuals actually received inpatient medical treatment. This distinction is important because Medicaid can legitimately pay for certain hospital services when an incarcerated person receives inpatient care outside the correctional facility, though those situations represent a small fraction of healthcare provided to prisoners.
New York officials told auditors that the state’s Office of Medicaid Inspector General was reviewing the payments and would eventually recover any outstanding overpayments.
The state told investigators it planned to improve its process for cross-referencing New York Department of Corrections and Community Supervision records with Medicaid enrollment data. Officials said they’re exploring an enhanced report to identify mismatches using lower-probability matching criteria and manual review for individuals with minor demographic discrepancies.
The audit concluded New York needed to improve its process for identifying incarcerated Medicaid recipients and halting managed care payments that should no longer continue. The findings serve as a reminder that even well-established administrative procedures require ongoing oversight and technological investment to prevent improper payments from slipping through the cracks.
