I have been following the various discussions about how to reduce 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.
However, there is one area where reducing the number of employees would likely increase government spending: Medicare.
Many people who prefer Medicare tell us that one of the reasons Medicare is so great is that its administrative costs are lower than the typical private health insurer. Administrative costs Are lower. But that doesn’t mean Medicare is more efficient. It is almost certainly less efficient and the reason is fraud. Because there are few administrators, much fraud goes unnoticed or unaddressed. If the number of administrators were reduced even further, fraud would almost certainly increase.
By means of one estimateMedicare and Medicaid fraud amounts to more than $100 billion per year.
I think it’s credible that every additional 100 Medicare workers, if they actually worked, would reduce fraud by $1 billion. So if expenses per employee, all-in, including pensions, etc., were $200,000 per year, 100 more employees would cost $20 million. Let’s say I’m wrong and it takes 500 more employees to reduce fraud by $1 billion. That’s an expenditure of $100 million to save $1 billion. Naturally, fraud is easier to recognize at the current margin than at more distant margins. But I’m willing to bet that the government could spend less than $1 billion on employees to reduce fraud by $10 billion.