Expect Fraud from Government Health Care

Gary Wolfram
Issue CCLX - September 18, 2010
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In a recent issue The Economist pointed out that on July 16 the U.S. Attorney General announced "The largest federal health-care fraud take down in our nation’s history." Federal authorities arrested 94 people in five states in a quarter-billion-dollar plot to defraud Medicare.  The Miami Herald, in an August 2008 article, reported that Medicare and Medicaid lost $60 billion to fraud, including $2.5 billion in south Florida.  Much of the Florida fraud is associated with organized crime. 

Medicare and Medicaid fraud is big business. According to a 2008 report of the U.S. Senate Permanent Committee on Investigations, Medicare paid dead physicians 478,500 claims totaling up to $92 million from 2000 to 2007. These claims were paid to an estimated 16,548 to 18,240 deceased physicians.  Nearly one of three claims (29 percent) Medicare paid for durable medical equipment was erroneous in FY 2006 according to an August 2008 Inspector General, Department of Health and Human Services, Report.

While this is news, it is not surprising.  The Obama administration’s budget for fiscal year 2011 anticipates spending $492 billion on Medicare and $271 billion on Medicaid.  Given that states generally have about a 50 percent match for Medicaid, there will be about $1 trillion in government spending in these two programs alone.  When the federal government has a program that spends $1 trillion, with massive amounts of paperwork and regulation, the incentive for organized, and unorganized, crime to become involved is pretty high. 

The 2,800-page health care reform bill, that became law this spring, will be another source for fraud and abuse, as thousands of pages of regulations will swamp the health care system, leaving lots of opportunity for criminal elements to feed at the government trough.  Given that today the government spends about 49 percent of every health care dollar, it is difficult to see how more government intervention will reduce the cost of health care services.  Indeed, it surely must increase the cost of health care services as more of health care is allocated through the political process rather than through the voluntary exchange of the market process.

Rather than continue down the road to complete government take-over of the health care industry, we should be moving in the opposite direction.  Michigan’s next congressional delegation should join with the other members of Congress to repeal the so-called Patient Protection and Affordable Care Act.  The Act offers neither patient protection nor affordable care.  The way to reduce health care costs and increase its availability and quality is to allow the market system, that system that has resulted in a massive increase in standard of living among the poor, to produce health care.  Further regulations and central planning by the federal bureaucracies will only compound our problems.  We should move away from third-party payments and employer-based health care that are the result of past government actions, both intended and unintended.

Both Medicare and Medicaid should be turned into health savings accounts.  Those qualifying for the programs would receive a grant to let them purchase catastrophic care policies, and the government would contribute to a health savings account that Medicare and Medicaid recipients would use to pay for some portion of their expenses up to the deductible.  Any money left in the health savings account would remain the property of the recipient.  The purpose of such a change would be to alter incentives.  Patients would be interested in how much procedures cost, and there would be less incentive to invent procedures and products that can be purchased only because the government is forced by the political process to pay for them.

Allowing individuals to deduct the cost of insurance premiums would move the system away from employer-based health insurance.  The reason your health insurance and not your car insurance is tied to your job is due to the tax treatment of health insurance.  Allowing you to deduct premiums for health insurance will move individual policies onto an even footing with employer-based policies, and would create incentives for market-based group policies to expand. Once we have moved away from employer-based health insurance, then the issues of pre-existing conditions and portability become moot. As with life insurance, as long as you make your premiums, you will be able to maintain your coverage.  Instead, we have government tax-policy creating an employer-based system and then further government regulation requiring insurance companies to sell insurance to people with pre-existing conditions.  I don’t know what this is, but it is not insurance.  Imagine if life insurance companies could not deny coverage for pre-existing conditions.  When my parents die, I would purchase a million-dollar policy on both of them.  The insurance company would be forced to pay, as death is a pre-existing condition, and they couldn’t be denied coverage.

Milton Friedman wrote an article in The Public Interest in 2001 in which he explained that the problems with health care are to be found in the extraordinary amount of government intervention in the industry.  Nearly ten years and thousands of pages of additional legislation later, it is time to reread the late Nobel Laureate and follow his advice.  Our lives may one day depend upon it.

This post originally appeared at The Michigan View (http://themichiganview.com) on September 3, 2010.

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