The President has announced a government crackdown on Medicare and Medicaid fraud. The effort appears to be an attempt to make it easier for Americans to swallow the health care “reform” he’s trying to shove down their throats. As House Republican leader John Boehner correctly asked, “Why can’t we crack down on fraud without a big-government takeover of health care?”     

As I’ve noted before, improper payments made by Medicare and Medicaid is may well be $50 billion more than the already appalling $100 billion annual figure the president cited. Administrative efforts to reign in fraud and abuse are welcome, but won’t solve the huge and fundamental inefficiencies of these programs. Because the law requires government health care programs to quickly get payments out the door, Uncle Sam will always be engaged in a costly game of “pay and chase.”

 

The broader problem is that government programs aren’t subject to market discipline. Policymakers and administrators have little incentive to be frugal because they face little or no negative consequences when playing with other people’s money.

 

Most of us have noticed how good private companies can be at reducing fraud. I recently received a call about questionable charges on my Discover credit card. After quizzing me on a list of purchases made with my card in the past 24 hours, it became clear that someone had gotten control of my account. Discover immediately closed the account, opened an investigation, and removed me from any liability for the fraudulent charges.

 

What amazed me is that I only had about $300 worth of charges on my card. It’s not a big account and thus not a big money maker for Discover. Yet, within 24 of a string of suspicious charges, the company was right on top of it before I even realized anything nefarious was going on. Private markets don’t always work this well, but government programs almost never do.