Medicare Administrative Costs and Fraud

An Philip Klein American Spectator article is relevant to thinking about health care policy.

Coburn based his figures on an estimate from health care fraud expert Malcolm Sparrow of Harvard University, who has said -- at the low end -- 10 percent of the roughly $1 trillion in spending on government health care programs may be lost to fraud.

"By taking the fraud and abuse problem seriously this administration might be able to save 10 percent or even 20 percent from Medicare and Medicaid budgets," Sparrow said in May testimony before the Senate Judiciary Committee. But to accomplish this, Sparrow explained, the government would have to boost anti-fraud spending to as high as 2 percent of the cost of the programs from the roughly 0.1 percent now dedicated to the task.

See also "Medicare’s Hidden Administrative Costs: A Comparison of Medicare and the Private Sector" (Based in Part on a Technical Paper by Mark Litow of Milliman, Inc.) Merrill Matthews, January 10, 2006. I read the intro, which makes a lot of sense. It notes that Medicare costs exclude management, research, the cost of collecting government funds (much less the distortionary costs of taxation), and the administrative costs to employers of collecting premiums from employees. Also, costs of buildings and much fraud pursuit is not included in the usual administrative costs of Medicare. And Medicare does not have to pay the 1-2% state taxes on premiums that private insurance companies must pay. Medicare's costs are also lower because Medicare does not scrutinize claims as private companies do--- the report claims that Medicare does not try to pursue fraud unless it is massive, which is plausible.