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.
