By Brendan Sasso - 10/16/12 06:36 PM EDT
Congress first enacted the Lifeline program in 1985, during the Reagan administration. In 2005, the FCC expanded the program to cover low-cost cellphone service.
The program pays for phone service, not the phones themselves. But many companies that receive funding through the program offer free and low-cost phones to their subscribers.
The discounts average $9.25 per month for qualifying households, and the program is funded through fees that the telephone companies pass on to consumers on their monthly bills.
The point of the program is to ensure that everyone has access to basic communications services, especially during emergencies.
But even the FCC acknowledges that the costs of the program have ballooned in recent years. By 2011, Lifeline was costing phone subscribers $1.75 billion per year.
"To take advantage of the federal handout, prepaid wireless companies — who collect most of the subsidy — often camp out in low-income areas to get better access to those who qualify for the program," Coburn wrote. He described reports that one company gave discounts to customers who referred friends and family to the program and other companies enrolled the same people multiple times.
FCC Chairman Julius Genachowski has admitted the program "created perverse incentives for some carriers" and "invited fraud and abuse."
In January, the FCC overhauled the program in an attempt to bring down its cost.
The commission toughened eligibility standards and created a database to ensure that people weren't receiving multiple subsidies.
The reforms are on track to bring down the cost of the program by $200 million this year and $2 billion over three years, according to the FCC.
"Over the past two years, the Commission has implemented the most effective reforms in the program’s history, substantially cutting waste, fraud and abuse and putting the program on track to save $200 million this year," FCC spokesman Neil Grace said in an email. "We have undertaken these reforms while ensuring that low-income Americans continue to have access to communications services that are essential for finding jobs, reaching public safety, and communicating with family members.”