The Blog

Profit and Fraud

"Some troubling questions about our government's ability to manage a medical bureaucracy."

11:00 PM, Nov 3, 2009 • By JEFFREY H. ANDERSON
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According to 60 Minutes, cocaine trafficking has now given way to Medicare fraud as the number-one illicit enterprise in South Florida. Both 60 Minutes and the Washington Post report that nationwide Medicare fraud now costs American taxpayers $60 billion a year.

The 60 Minutes story is fully of juicy anecdotes about government incompetence. There's the criminal who says that stealing from Medicare is so "easy" that "it was ridiculous." There's the lady who for six years has been telling Medicare officials that strange and extravagant charges keep showing up on her explanations of Medicare benefits--charges that officials still have yet to prevent from accruing, and from being paid by tax dollars. And there's the man on Medicare who used his own hands and arms to open up his explanation of benefits, only to read that Medicare had been billed--and had paid--for two new (prosthetic) arms on his behalf.

Even 60 Minutes says that the rampant nature of Medicare fraud raises "some troubling questions about our government's ability to manage a medical bureaucracy."

Given all of this, it's no wonder that since 1970 the costs of Medicare have risen over 25 percent more, per patient, than the combined costs of all other health care in America. And that's even without counting the Medicare prescription drug benefit.

Sixty billion dollars in Medicare fraud is a lot of money, but how can we really put it into perspective? President Obama talks a lot about insurance companies and their "record profits." Let's compare those numbers.

Fortune 500 tallies show that last year's profits for the ten largest private insurance companies in America were $8 billion--combined. Even the single most profitable insurance company didn't make five percent as much as what Medicare lost to fraud.

It may be surprising that you could multiply the profits of America's ten largest private insurance companies seven-fold and that Medicare would still have managed to lose more money than they make. But try this one on for size: The Washington Post reports that a high-school dropout in Miami submitted false Medicare claims from her laptop across four years, bilking Medicare out of $105 million. Four of the ten largest private insurance companies failed to make $105 million in combined profits. That's right: A lone criminal grossed more from Medicare fraud than four out of the ten largest private insurance companies collectively netted in profits.

All of this is important because, as everyone knows by now, the Democrats want to grant the federal government far greater control over our nation's health-care system, while Republicans want to leave that control in private hands. It turns out that the difference in costs between these two approaches is even greater than the difference between the $60 billion that Medicare loses to fraud and the $8 billion that private insurers make in profits.

The massive Democratic bills in the House and Senate would each cost in the range of $1 trillion. The Republican small bill, similar to the small bill proposed in these pages, would cost about $60 billion--about seven percent as much. The Democratic bills would increase taxes and penalties on Americans by over half a trillion dollars. The Republican bill wouldn't raise taxes at all. The Democratic bill would be paid for largely by siphoning about $400 billion out of Medicare. The Republican bill wouldn't touch Medicare.

But these tallies aren't all that is different between the bills. The Democratic approach is to increase access to health care by imposing government mandates, which in turn would raise costs. The Republican approach is to lower costs, which in turn would increase access. Thus, the Republican bill would meet both of the widely stated goals of health-care reform: It would decrease the number of uninsured and lower the costs of health care. The Democratic bills would address the number of uninsured at the expense of exacerbating health costs.

The 1,500-plus-page Democratic bills would result not only in higher taxes but higher insurance premiums. The 219-page Republican bill would make health insurance more affordable for everyone, across the board.

It would do so by allowing Americans to purchase health insurance across state lines and letting them shop for the best values from coast to coast; allowing small businesses to pool together to buy insurance; allowing private entities to follow the Safeway cost-cutting model of offering lower premiums for healthier lifestyles (which the federal government currently--amazingly--limits); and by preventing the runaway malpractice lawsuits that force doctors to practice costly defensive medicine. Despite felling forests of trees, the Democratic bills would do none of these four things.