FatCratz

Public Sector vs. Private Sector Incentives in Health Care

A central theme of FatCratz is how different a whole range of incentives are for public vs. private sector employees. These differing incentives are illustrated brilliantly in the field of health care by Kerry Weems and Benjamin Sasse in a piece in today's WSJ. They compare a number of different aspects, but the most salient for FatCratz is the handling of fraud:

Private insurers must combat fraud -- or go out of business. Indeed, these payers have every incentive to invest in antifraud personnel and strategies down to the point where return and investment are equal. ... In fact, the total amount of Medicare fraud is unknown. The government does not measure or estimate fraud in its programs; instead, it measures payments made "in error." According to Medicare's own most recent data, payments made in error amount to over $10 billion annually. (Medicaid's payment errors in 2007 equaled a whopping $32.7 billion, according to a report by the Department of Health and Human Services.) Others have claimed Medicare's payments made in error are much higher. Even with the inclusion of the budget of the inspector general for the Department of Health and Human Services, Medicare spends less than one-fifth of 1% on antifraud measures -- a small fraction of what private plans invest in their efforts to build a network of honest providers.

Fraud Flowers When Funds Flow Fast

In California, a helpful reminder of how hard it is to police even good programs when they expand too rapidly. A state program was set up to provide in-home health care for elderly and disabled; this year it was budgeted at $5.42 billion to service 440,000 Californians. Under the program, people receiving care can hire whomever they want at state expense, and most hire their own family members for anywhere from $8 to $14.68 an hour. This is where it gets interesting.

One of the bigger busts in Fresno so far involved a husband and wife who got their children to bill the state $150,000 to care for them. The husband claimed he was completely disabled and could not get out of bed. A few days of surveillance revealed that he was spending eight to 10 hours a day working on his ice cream truck. He was caught on camera stocking the truck -- as well as dragging a washing machine across his driveway. His wife claimed to be completely paralyzed on one side. She was caught using the arm that she said was paralyzed to wave to her husband, pull down a heavy wood garage door and unload groceries from her car.

Problem is, no one is even investigating most of the alleged fraud. L.A. County has no investigators at all, and a backlog of over 800 fraud tips. Fresno County had to spend $650,000 of their own money to set up the state's only investigative unit. It is tiny, and they have a backlog of over 1,700 tips.

The nasty little secret: Those family members providing care have to pay union dues to SEIU, who collect over $5 million a month from in-home caregivers. They in turn donate heavily to the Democratic party, which enjoys single party rule in the state legislature, who in turn keep the spigots to the program running at full blast.