Sometimes spending money saves money – ctd.

Avik Roy responds to my post on spending more money on fraud prevention in Medicaid with the following:

Aaron’s suggestion that we increase our “investing in fraud prevention” sounds reasonable on the surface. But it’s not that simple. Government insurers are fundamentally unlike private insurers, who have an economic incentive to eliminate fraud. If you want to prevent fraud, you have to have a system in which the issuers of insurance have an economic incentive to prevent it. You can hire more detectives, but fraudsters are clever about hiding fraudulent billing amidst legitimate spending. The way Medicaid is legally structured makes it difficult to root out the problem.

There are a number of tired memes about government that get used to finish arguments. One of them is that since the government cares less about profits, it cares less about X; therefore, private companies will always do a better job of X. Maybe that’s true for fraud, but I think there’s likely fraud that goes on with doctors’ billing private insurance as well. We might not know about it, because private companies are not held publicly accountable in the same way that government is, but I’ll concede the point here for the sake of argument.

But to claim that “fraudsters are clever” as the reason that Medicaid can’t beat fraud? Come on. I may be the academic non-businessman in this debate, but even I can figure out how to make an economic incentive to preventing fraud.

If you believe that private insurance companies are clever enough to catch the fraudsters (and believe that public employees can’t be that clever) then put them to work catching the fraudsters in Medicaid. Give Medicaid some money to outsource the fraud investigations to private companies. Make their pay some percentage of the fraud they sniff out. I’d imagine that since the private insurance companies are so good at this already, that they already have algorithms in place to detect fraud.  They could make a ton of money, and save Medicaid even more. Or some enterprising security firm could do it. It doesn’t matter to me.

As Austin said this morning, perhaps it’s the market and the government focusing on the problem together that is the solution. I still think it’s odd not to attempt that before resorting to dissolving the whole program.

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