I’ve been following the various discussions of how to cut the size of government.
Elon Musk, one of the cutters, wants to reduce the number of employees in the federal government. This can often make sense.
There’s one area, however, in which cutting the number of employees would probably increase government spending: Medicare.
Many people who favor Medicare tell us that one reason it’s so great is that administrative costs are lower than for the typical private health insurance company. Administrative costs are lower. But that doesn’t mean Medicare is more efficient. It’s almost certainly less efficient and the reason is fraud. With few administrators, a lot of fraud goes unnoticed or unaddressed. If the number of administrators were cut even further, fraud would almost certainly increase.
By one estimate, the amount of fraud in Medicare and Medicaid is over $100 billion a year.
I think it’s credible that every additional 100 Medicare employees, if they actually worked, would cut fraud by $1 billion. So if the outlay per employee, all in, including pensions, etc., were $200k per year, an additional 100 employees would cost $20 million. Let’s say I’m wrong and it takes 500 additional employees to cut fraud by $1 billion. Then that’s an expenditure of $100 million to save $1 billion. Of course, fraud is easier to catch at the current margin than at further-out margins. But I would bet the government could spend under $1 billion on employees to cut fraud by $10 billion.
READER COMMENTS
Craig
Nov 27 2024 at 9:09pm
Perhaps, I mean it seems any agency that gives away benefits of some sort is subject to some amount of fraud and in response the government seems to have various IG offices charged in no small part to police the issues. I think Medicare is HHS-OIG, not sure specifically but these are armed police forces akin to the postal police, etc effectively a kind of paramilitary force. How many insurance companies do that? None that I am aware of. And of course they are a government agency so that means the target of their investigations is naturally subject to Due Process. Does HHS-OIG even COUNT for purposes of determining the administrative costs of Medicare? Not sure. But I would say its exactly what government isn’t good at, economically efficient Due Process is an oxymoron, frankly its even designed NOT to be efficient. So perhaps people could be cut and the process outsourced to plan administrators incentivized to find this $100bn in fraud. Assuming its even $100bn, knowing government that’s probably the tip of the iceberg.
Craig
Nov 27 2024 at 9:11pm
And there should be pictures on Medicare cards too because user/enrollee fraud, ie allowing somebody else to use your Medicare card who might not yet be eligible for Medicare might not be a $100bn line item, but putting a picture on the card is low hanging fruit. Its almost stupid NOT to do it in this day and age no less and they don’t because its not their money and they just don’t care.
Peter
Nov 27 2024 at 10:26pm
To be fair the vastly majority of the fraud to the point of nearly 100% is on the billing side. My ex deals with something similar on the VA as an auditor and I think only once in twenty years did she ever communicate fraud by a patient whereas from private medical offices, daily.
The real problem is medical providers never lose their license for it, much less are prosecuted unless it’s especially egregious. The simply don’t get the claim paid and then just submit a new fraudulent one tomorrow which will; it’s a numbers game. Not just picking on the VA or Medicare here either, Quest is even more atrocious as is any sort of court ordered medical service. There simply is no downside risk to fleecing the government in practice.
Craig
Nov 27 2024 at 11:57pm
This comment was actually an add on comment to a previous comment which for some reason isn’t posted (no foul language, I promise!) I guess it got lost in the shuffle.
Matthias
Nov 27 2024 at 10:08pm
Where does your estimate of 1 extra employee cutting 10 million dollar of fraud per year come from?
David Henderson
Nov 28 2024 at 10:07am
When I said, “I think it’s credible,” that’s what I meant. It’s a guess.
Rob Rawlings
Nov 27 2024 at 10:21pm
If DOGE is to live up to its name – then couldn’t it cut the number of medicare employees while also redeploying some of the remaining employees to the task of reducing the amount of medicare fraud ?
steve
Nov 28 2024 at 12:56pm
First, Medicare has more fraud but when you look at the definition of fraud it often amounts to insufficient paperwork being done. I believe it was Stuart Buck who posted on this recently noting that 100% of the bills for long term care at the VA were considered fraudulent due to insufficient documentation. It’s inconceivable that some VA patients dont need long term care so some of those bills had to be legit. So I would bet that a large part of that $100 billion is legit, but the paperwork wasn’t done properly.
Next, billing for Medicare is much easier. You need fewer pre-approvals and billing is uniform. With private insurers you need a lot more pre-approval stuff so more provider time is spent on paperwork, more gets turned down and you need a much larger billing staff. Every once in a while (from experience) you miss a subtle change a private insurer makes and then you get thousands or millions of dollars denied. There is a trade off in reducing fraud. Maybe there is a reason private insurers charge more. (There is actually a bit of literature looking at this.)
So I think you could decrease fraud, it does exist, if you hired more fraud investigators. Maybe even better you hire some AI folks to write programs looking for patterns associated with fraud. But if you decide to go all out and follow practices imposed by private insurers I doubt you save any money.
Steve
Thomas L Hutcheson
Nov 29 2024 at 1:06pm
Ditto IRS
Ditto policing/prosecutors.
If Elon is trying to increase efficiency, expenditure cuts is the wrong starting point. He should look at where market prices diverge from Pigou tax/subsidy prices. Sometimes that DOES involve expenditure as with farm subsides, residential solar panels, ethanol subsidies, but sometime it’s just the opposite as with net CO2 emissions.
Alan Goldhammer
Dec 3 2024 at 4:09pm
As a user of Medicare, I’ve been interested fraud for some time. What I have observed is most of the fraud takes place in very specific areas, durable medical devices being a prime example. Medicare is very good at negotiating fees for most medical procedures and the one area that “might” be open to fraud is over-coding. I don’t use a lot of services at present but do look at every billing I receive to make sure things are coded correctly. I think that improvements in AI can be deployed to quickly scan billings as they are all computerized these days to find anomalies. I would like to see the nascent AI companies turn their attention to this as the potential payback is significant and can reduce the need for head count at CMS. I suspect there are other agencies in the government that might benefit from similar advances.
One other ‘great’ solution is to put Senator Scott on this as it was his company Columbia/HCA that received the largest Medicare fraud fine to date. Of course he pleaded ignorance about knowing what was going on.