Medicare makes a staggering 1.2 billion electronic payments each year, making it highly vulnerable to cheating by health‐care providers and organized‐crime rings. Criminals need only fill out the government forms carefully and the “claims will be paid in full and on time, without a hiccup, by a computer, and with no human involvement at all,” according to Sparrow. A perfect example is the recent case of a high‐school dropout in Miami who was able to single‐handedly bilk Medicare out of $105 million from her laptop by submitting 140,000 separate claims for equipment and services.
Medicaid is also a huge abuse target. The GAO puts Medicaid fraud at $33 billion — 11 percent of state and federal spending on the program. Again, that is likely a substantial underestimate. A former Medicaid investigator believes that up to 40 percent of New York State’s Medicaid budget is siphoned off in fraud and improper payments, but New York probably has a worse problem than elsewhere. Using Sparrow’s 20 percent estimate instead, Medicaid rip‐offs top $60 billion a year nationwide.
How does all this fraud and abuse occur? In many ways, including billing for services and medical equipment not provided, misrepresenting the services provided, and double billing. That last one is common. In one recent case, the University of Medicine and Dentistry of New Jersey double‐billed Medicaid repeatedly over the years by directly submitting claims for outpatient physician services, even as doctors working in the hospital’s outpatient centers were submitting their own claims for exactly the same procedures.
Another trouble spot is Medicaid’s nursing‐home benefits, which are meant for people with low incomes and few financial assets. Since nursing homes are expensive, the program creates a big incentive for higher‐income families to falsify their status and apply for the benefits. Indeed, a whole industry of financial consultants helps ineligible seniors hide their income and assets so that they qualify. The result is that the program loses about $10 billion a year to fraudulent claims.
The bottom line is that the enormous size and complexity of federal health programs results in a huge waste of taxpayer funds. The inspector general of the Department of Health and Human Services recently told Congress: “Although it is not possible to measure precisely the extent of fraud in Medicare and Medicaid, everywhere it looks the Office of Inspector General continues to find fraud against these programs.”
Medicare and Medicaid are the biggest fraud targets, but this problem plagues all government subsidy programs. Official loss estimates for other programs include: $12 billion for the Earned Income Tax Credit, $5 billion for Supplemental Security Income, and $14 billion for unemployment insurance. All in all, the cost to taxpayers is well over $100 billion a year, which translates into a theft of $1,000 or more from every household in America every year.
We think that there are good policy reasons to dramatically cut Medicare, Medicaid, and other benefit programs. But at the very least, the vast magnitude of graft in these programs should give every policymaker pause before pumping even more taxpayer money into the federal subsidy empire.