November 24, 2010
The Office of Management and Budget was recently pleased to announce that the rate of improper payments made by federal agencies decreased from 5.65 percent to 5.49 percent last year. There’s just one problem: the total price tag increased by $15 billion to $125 billion.
OMB explains:
Now, because many of the targeted programs – such as Unemployment Insurance and Medicaid – are paying out more benefits as the economic downturn creates more demand for these benefits, the total number paid out in improper payments increased to $125 billion last fiscal year even though the overall error rate declined. This is an unfortunate result of the recession and of basic math: the more that is paid out, the more paid out in error even if the overall rate declines.
The “basic” math points to the underlying problem: the more the government spends, the more it wastes. Therefore, the solution to reducing improper payments isn’t simply more auditing and red tape, it’s shrinking the size of the federal government so that it has less money to spend. Moreover, as a Cato essay on fraud and abuse in government programs explains, the actual price tag for improper payments is probably much higher:
Other estimates of improper Medicare payments are higher. Malcolm Sparrow of Harvard University, a top specialist in health care fraud, argues that estimates by federal auditors do not measure all types of fraud. He believes that as much as 20 percent of federal health program budgets are consumed by fraud and abuse, which would be about $85 billion a year for Medicare…
The GAO puts the cost of improper Medicaid payments at $33 billion, or about 10.5 percent of the program’s total spending. But if improper payments are 20 percent of the program’s cost, as Malcolm Sparrow thinks might be the case, that would be a $63 billion annual loss to taxpayers.
