Spending Off the Hook: Free Phones Costing Taxpayers $2.1 Billion Per Year

You're probably familiar with the food stamp program which grew from $35 billion in 2008 to $75 billion last year. But did you know that getting food stamps also makes you eligible for a free government cell phone? A program called Lifeline provides free phones and free monthly minutes to anyone on food stamps, WIC, Medicaid, Head Start, and several other government programs. And just like food stamps, Lifeline (aka "phone stamps") has been growing by leaps and bounds since 2008, at significant cost to taxpayers.

Program participation was stable from 2005 to 2008, from 6.9 million to 7.1 million participants, but increased to 8.6 million in 2009. Likewise, support payments were relatively stable from 2005 to 2008, from $802 million to $823 million annually, before increasing to approximately $1 billion in 2009.

The rapid growth of the program has continued since then. In 2011, the FCC estimated the cost (page 153) of the program would be $2.1 billion and said it would reach $3.3 billion by 2014 absent major reforms. The FCC also found that part of the problem with the program was rampant fraud:

[O]ur ongoing oversight has revealed that a substantial number of subscribers are receiving duplicative Lifeline support, which includes individuals receiving two or more Lifeline benefits from ETCs as well as two or more individuals in a household receiving benefits from multiple ETCs.

How bad is the fraud? A survey conducted by the FCC across 17 states and territories found that, on average, 9% of phone recipients were ineligible (page 243). In some states like Alabama, New Hampshire, and West Virginia, the ineligibility rate was 18-19%. And all of that is based on a survey to which 27% of users refused to respond to questions.