The OBBBA has introduced stricter verification requirements and tax policy changes, but its implementation has led to mixed results, including increased vulnerabilities for fraud, waste, and abuse
Key insights:
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The OBBBA has stricter verification requirements — These requirements have inadvertently created an environment that incentivizes fraudulent activities, such as identity theft and document forgery, especially among individuals seeking Medicaid and ACA coverage.
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The OBBBA enacts tax policy modifications — These modifications, including reduced third-party reporting mechanisms and expanded tax benefits, may create opportunities for underreporting of income among gig workers and small businesses.
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OBBBA’s contains large-scale funding mechanisms — These mechanisms along with rapid implementation may put pressure on traditional procurement safeguards, creating potential challenges in oversight and accountability.
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The One Big Beautiful Bill Act (OBBBA) aimed to fulfill several policy objectives from the Trump Administration’s campaign platform. However, an examination of the legislation and its implementation reveals mixed results, particularly concerning potential vulnerabilities for fraud, waste, and abuse across various sectors.
Healthcare eligibility fraud: A slippery slope
The OBBBA introduced stricter verification requirements for lawful status, residency, and work eligibility within healthcare benefit programs. While intended to bolster program integrity, these tightened standards have, in some cases, inadvertently incentivized fraudulent activities.
For example, individuals seeking Medicaid and Affordable Care Act (ACA) coverage have reportedly resorted to identity theft, document forgery, and falsified employment or training records to meet the new criteria. This environment has attracted organized fraud networks and unscrupulous enrollment brokers who exploit system vulnerabilities, ultimately impacting legitimate beneficiaries through compromised identities and bilking taxpayers through misallocated resources.
Historically, enhanced verification measures have sometimes led to similar unintended consequences. The period after passage of the Immigration Reform and Control Act of 1986 (IRCA), for instance, saw a rise in widespread counterfeiting operations due to document requirements. Similarly, Medicaid programs have consistently battled identity fraud, and related work requirement pilot programs have shown patterns of misreporting. The rapid, large-scale eligibility transitions during the pandemic also created opportunities for fraudulent activity. These historical examples demonstrate an unfortunate reoccurring pattern that sometimes administrative safeguards, while designed for integrity, can create incentives for sophisticated circumvention strategies.
Tax policy changes: Opening doors to evasion
The OBBBA’s tax policy modifications have introduced new dynamics in reporting and compliance, potentially affecting revenue collection. The legislation reversed the $600 1099-K reporting threshold and raised 1099-MISC/NEC thresholds to $2,000. This reduction in third-party reporting mechanisms makes it harder to ensure accurate income declaration. Simultaneously, the law expanded certain tax benefits, including a 100% federal credit for private-school scholarship donations and a doubled, qualified small business stock exclusion. These changes impact various stakeholders, including gig workers, self-employed individuals, operators of small businesses, high-income investors, charitable organizations, and tax planning professionals.
In addition, state-level scholarship programs with similar 100% credit structures have experienced various forms of abuse. These precedents indicate that the current changes in the OBBBA may create opportunities for underreporting of income among gig workers and small businesses. There is also potential for misuse of the new tax benefits through self-dealing arrangements or sophisticated strategies designed to minimize tax obligations.
History suggests that changes to reporting requirements and tax incentives can create compliance challenges. Past instances in which reporting mechanisms were weakened or enforcement reduced have correlated with an increase in the tax gap — the difference between taxes owed and taxes collected. The Tax Cuts and Jobs Act (TCJA) era, for example, demonstrated how new provisions could be exploited in unforeseen ways.
Unaccountable spending and contracting fraud: A risky proposition
The OBBBA also established significant funding mechanisms, including a $100 million Office of Management and Budget fund and $30 billion allocated for immigration enforcement activities, that granted relatively broad administrative discretion in their deployment. These substantial appropriations, intended for rapid implementation, may put pressure on traditional procurement safeguards.
Indeed, the sheer scale and urgency of these funding streams have attracted various participants, including agency officials with expanded discretionary authority, established government contractors, and new market entrants.
Historical experience with large-scale, rapidly deployed government funding suggests potential challenges in oversight and accountability. The Department of Homeland Security, for example, has been designated as High Risk by the Government Accountability Office partly due to procurement management concerns. In the past, post-9/11 security initiatives and Iraq reconstruction efforts also revealed vulnerabilities in expedited contracting processes; and more recently, COVID-19 relief programs like the Paycheck Protection Program demonstrated how substantial funding, compressed timelines, and reduced oversight can create conditions conducive to fraud and waste. These precedents suggest that the current funding structure within the OBBBA may face similar risks, including potential misallocation of resources, irregular contracting practices, and exploitation by opportunistic actors seeking to benefit from loosely constrained procurement processes.
Cross-cutting vulnerabilities and systemic impact
The OBBBA’s implementation has introduced significant operational changes across multiple government programs, leading to rapid policy transitions and large-scale re-verification processes. These administrative shifts have generated confusion among beneficiaries and stakeholders, which opportunistic actors have exploited.
This exploitation includes phishing operations and fraudulent benefit fixer services that prey on individuals struggling to navigate the new requirements. The pace and complexity of these changes have challenged traditional oversight mechanisms, as the government’s capacity for auditing, data analytics, and procurement controls has struggled to keep pace with the scale and speed of implementation demands.
These gaps in oversight and enforcement are likely to create systemic vulnerabilities beyond immediate program integrity concerns. When fraudulent activities succeed, legitimate program beneficiaries face reduced access to services as resources are diverted from their intended purposes. Simultaneously, compliant taxpayers bear increased burdens as fraudulent claims and inefficient spending patterns require additional revenue or reduce the effectiveness of public investments.
This dynamic illustrates how implementation challenges, like those in the OBBBA, can create cascading effects, ultimately undermining both program effectiveness and public trust in government operations, regardless of the underlying policy objectives.
You can find more of our coverage of the impact of the One Big Beautiful Bill Act here
