Outside the Box

Entitlement Bandits

John Mauldin

August 2, 2011

This week’s Outside the Box is guaranteed to upset you. It is about Medicare fraud. Warning: it was written by a very conservative analyst and is “pro” the Ryan plan. I want you to read it not because I am trying to get you to support the Ryan plan but to get a handle on the size of Medicare and Medicaid fraud and just how easy it is to perpetrate.

There may well be better ways than the Ryan plan as advocated here, but something must be done. Want to cut spending by $1 trillion in ten years? Eliminate the fraud. If American Express can hold fraud to 0.3%, maybe we should outsource our Medicare fraud detection to them. I say that only slightly tongue in cheek.

This outraged me. I knew it was bad, but I had no idea… The piece is short, but it will strike a nerve, I bet. The link to the original is http://www.nationalreview.com/articles/271006/entitlement-bandits-michael-f-cannon?page=1.

Tomorrow morning I leave for New York and then on to Maine with my youngest son, Trey, for a few days of fishing, wine, and friends; and then I’m back for a night and off the next day to a consulting gig in Calgary. In and out and then home for a few weeks (I hope).

John Mauldin, Editor
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Entitlement Bandits

By Michael F. Cannon

Adapted from the July 4, 2011, issue of National Review.

The budget blueprint crafted by Paul Ryan, passed by the House of Representatives, and voted down by the Senate would essentially give Medicare enrollees a voucher to purchase private coverage, and would change the federal government’s contribution to each state’s Medicaid program from an unlimited “matching” grant to a fixed “block” grant. These reforms deserve to come…

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Craig Cheatum

Aug. 2, 2011, 10:30 a.m.

The fraud mentioned in this article is real but Iâ??m not sure itâ??s any worse than private insurance.  The Medicare fraud can easily be solved with technology and artificial intelligence software.  From anecdotal information, the problem is largely a culture of entitlement.  The sector has grown 150% since 1992 (versus about 30% in Japan, and is now as big as the federal government), some say largely because of employer sponsored insurance coverage.  Since employer sponsored insurance is tax deductible, all systemic increases (hence cultural) have very minor checks and balances, with increases passed along with low critical analysis.  The structural problem in the private sector is actually not called fraud, but more accurately called gamesmanship.  Doctors raise their prices every year by an amount considerably more than they really want, then insurance providers negotiate to a lower level, so both parties win (except consumers), and pass along the price increases to employers.


We spend twice as much as other developed countries for an outcome thatâ??s not any better (total near $2 trillion/year or more).  We need to cut that in half, by $1 trillion/year to be competitive.  Itâ??s a tax we donâ??t need and certainly thereâ??s an opportunity cost thatâ??s not desirable either.  One big improvement would be a single payer system where everyone pays based on their income.  This would cut down the number of white collar workers working for some 1300 health care plans, all operating to maximized profits from consumers.  Hopefully the number of plans would be reduced to 30 or less.  With everyone covered and a mass decrease in overall overhead, we could see some bargaining power on the behalf of the consumer, especially from the high income workers who will pay more (and have the same level of discomfort as lower income earners) but also have more influence to control costs.  We would also need everyone to file a tax return to verify income.  One possible solution would be to have 20 tax levels (so everyone would have skin in the game and individuals could point to their tax bracket easily, versus a percent above, etc.).  Say 2% for those making less than $5,000 and 25% for those making over $150,000, with gradations in between (all with no deductions or credits).  This would provide the desired measuring stick for monthly Medicare payments.  It would also form a basis for Congress (taxing authority) to change taxes each year as is obviously needed and they should be doing anyway.  Not just because things can change quickly, but because they donâ??t have any accountability at this point.  If they want to raise taxes or give tax cuts, they need to implement it on their watch and convince voters along the way.  Congress should also consider issuing defense and infrastructure bonds as a supplement to funding from general revenues.  Corporate taxes are a side show since they only contribute 10-12% of federal revenues.

Craig Cheatum
Houston, Texas

ROBERT SOUSEK 27198

Aug. 2, 2011, 9:22 a.m.

I am a graduate industrial engineer with a masters in economics.  I’ve worked in the health care field as well as industry.

The single fatal flaw of our health care system is that it is PIECE RATE INCENTIVE PLAN.  Everybody is compensated on how MANY and HOW MUCH EACH SERVICE is.  In other words, if I have a heart condition that can be alleviated by taking $50 a month pills or 100K on an operation which do you think I get? Right.

Everybody facet of healthcare is permeated with this draconian compensation and incentive system.  Until we eliminate it, NOTHING OR NO PLAN, Obamacare, Reagancare, Republicancare, etc., will corral the sprialing costs.  There is simply no incentive to do it.

Roger Macaione

Aug. 2, 2011, 9:11 a.m.

The article describing medicare and medicaid fraud discusses the merits of the typical
baby/bathwater desired reactions.  It is not my college graduate totally disabled 30 year old son who is perpetrating this fraud, but both very large and small health organizations, big
pharmaceutical companies, organized criminals, and crooked hackers.  Policing is the government’s
reponsibility.  I wonder who does a better job at it-the wall street regulators, the EPA, the FDA,
or the consumer safety people.  Should we stop taking medications, stop trading derivatives on wall street, stop buying from China, stop drilling in the Gulf of Mexico.  Is there some sort of connection here, but with the American Citizen the chosen target in this instance?

Hugo zamorano

Aug. 2, 2011, 9:05 a.m.

I am 100% for Medicare. However, there won’t ever be lasting success in the Medicare program without success in the management of its operating system. The best protection against fraud should be the constant correction of flaws in the Medicare operating system and the introduction of much needed self-regulation in the medical profession. It is the neglect of Medicare’s management that makes fraud possible, fraud that simply will not exist if Medicare were privately owned. We can’t afford the mistake of thinking that Medicare can’t be well managed, as we can’t afford to do without it.

It is true that government over spending has the country on the edge of bankruptcy. But it is equally true that extraordinary negligence in the supervision of how these government funds are spent increase the deficit by unknown billions of dollars. The U.S has the technology to protect against fraud. Let’s use it. 

Hugo Zamorano
Coral Gables, Fl.

Nelson Swanberg

Aug. 2, 2011, 9:04 a.m.

Health Care Rules

I favor a single payer US government health care system financed with a 5% tax on all income. Yes we have to ration health care because if it is free you want as much of it as you can get to extend your life and it will in and of its own right bankrupt the nation. I am a baby boomer and I see this coming. It is a tough choice but we have to make it. A single payer system eliminates the cost of paper work and administration and the profit incentive for insurance companies to not meet their obligations on coverage. All the government has to do is keep track of how much is collected, distributed and each citizen’s account. Your finger prints will set up your health care account.

The rules.

You get a maximum of 500 thousand dollars worth of health care in your life time. After that we give you drugs to ease the pain of death if they are needed. This makes you a consumer of health care without government interference or control. You can go to any doctor, dentist, eye doctor, clinic or hospital that will serve you. Protecting against fraud and false medical claims will have to be policed by the scrutiny of a random medical audit task force. No one will ever force you to have a swine flue vaccination.

Every year we pay out more than we collect the individual cap is lowered.

No private health care insurance will be allowed. If you have consumed your benefit you may purchase health care out of pocket. What can be more fair than that?

Members of Congress and the President will use the same health care system.

The government will not pay for abortions of convenience.

Military veterans and their immediate family (wife and natural born children) will receive full benefits for their life time provided they meet the below listed eligibility criteria. (No, I did not serve, but I respect and appreciate those who have!) If the rest of us have to go without health care our service men and women and veterans will have it!

If you are an illegal alien and you show up for health care at a hospital you get sent back to your country of origin.

If you are injured in an accident and negligence can be proven, you may bring a law suit against the negligent individual and have their remaining health care benefits transferred to your account that are equal to the cost of your treatment required because of the accident.

If you are of the dippy hippie nicotine fiend generation that finds it cool to use tobacco products you made your choice and your health is not important to you anyways â?? no health care for you! This will piss a lot of people off but then I never possessed the type of intelligence it takes to engage in that sort of a self destructive habit. Don’t ask me to sacrifice for your addictions.

Alcoholism is not a disease it is a choice. No health care for you!

If you have THC, cocaine or opiates in your system you are already self medicating â?? no health care for you!

If you go the White Castle more than once a week that is just plain being inconsiderate of other patients. No health care for me!

If you are in a weight range that classifies you as medically obese â?? no health care for you! You made your choice. Food is more important than your health. All you have to do to lose weight is eat less.

John Seater

Aug. 2, 2011, 7 a.m.

The easiest way to get rid of Medicare fraud is to get rid of Medicare.  In the first place, it is patently unconstitutional and so is illegal.  That is reason enough to end it.  In the second place, there is no market failure in US health care that requires any government to run a medical insurance program.  I have yet to hear of a single serious problem with American health care that was *not* caused by some level of government interfering with the private market.  Deregulate the private insurers, permit them sell medical insurance across state lines to maximize the competition, and let the market take care of health insurance.  The market does a good job with food, shelter, clothing, automobiles, computers, books, sewing machines, pencils, woodworking tools, brass screws, nuts and bolts, backpacking equipment, filing cabinets, cell phones, furniture, television sets, cookware, and all the other millions of products we buy every day.  What is so special about health care that the market can’t handle it?  The market used to handle it before Medicare.  On top of all that, government has no incentive to run things efficiently, as it proves just about every time it does try to run something. So why not simply scrap this worse-than-worthless program?

Robert Monical

Aug. 2, 2011, 4:11 a.m.

The solution is so easy. Divert all federal health care dollars into federal facilities. The military health care system is, in my experience quite good, not as expensive as the civilian and almost fraud proof.

IMHO, this is clearly a situation where conservative focus on private enterprise is an abject failure.

gary levin

Aug. 2, 2011, 12:24 a.m.

John- Loved your piece (and the national review’s) about medicare. Ispent 10 years in managed care medical group management AND working for hospitals and HMO’s during that period and I can tell you that the real solution is already in the works…Accountable Care Organizations. ACO’s are part of the new health care plan and we all know they won’t work..but what the Gov’t has REALLY done is incentivized providers to form at-risk organizations to share risk for Fee-for-service patients. They/we can already accept fixed payments and take risk for managed care. Once that ACO infrastructure is set up and nearly everyone is getting on the bandwagon..all the Gov’t has to do when the ‘test results’ come out in a few years is declare it a failure and say, “we can’t afford to be an unlimited indemnity plan anymore, from now on Medicare will be 100% fixed payments like Managed care- we will pay your ACO or regional ACOs a fixed amount per member per month”, similar to the UK system with a few twists and caveats. Whether its the Ryan plan or waiting for ACOs to fail, it is clear to me that the gov’t will convert from an indemnity system with unlimited liability to a fixed payment method..shifting the risk to provider systems. As long as the gov’t doesn’t micro-manage care beyond that, it could work very well.

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