Government employees help "rich" applicant defraud Medicaid

One of my favorite blog reads is Ace of Spades, and today Ace was trying to figure out why so many government employees seem to encourage fraud. Go read his whole post.

Summary: A citizen with a concealed video camera went into a government office in Ohio to apply for Medicaid benefits. If you're unfamiliar, Medicaid is a federal program that gives money (in some form) to people under 65 who are having trouble paying for medical care. So there's supposed to be some sort of income-vs-family size test to see if an applicant qualifies for taxpayer funds.

Our citizen-investigator posed as a Russian who dealt in "pharmaceuticals"--and quickly made it clear to the employee that these were "Bob Marley-type" drugs. He also mentioned that he owned an $800,000 McLaren F-1 super-sportscar. To make sure the point got across, he added that it had a "gold-plated engine."

The employee got the message, saying "I don't need to know any of this" and similar "I can't hear you" statements. She told the guy that he shouldn't say any of those things on his application but should claim to have some low-paying job, like "babysitting." Seriously.

Ace didn't blame the employee, but instead noted that virtually every office has two sets of rules: A set of "official rules," and the way things are actually done. Employees at every level quickly learn the difference.

In this case, the employee knew that although the official rules required her to only give taxpayer dollars if the applicant was "poor," the real rule--as it is in most government offices--was to make sure no one who came to her office seeking taxpayer dollars would have any reason to file a complaint against her. And she behaved accordingly.

Government employees know that the real rule of government is that one of the ways you can get in trouble is by denying benefits to an applicant. Thus all government workers who work in benefit-granting programs have a huge incentive to "fix" otherwise-disqualifying applications, and to advise such applicants on how to successfully defraud the system.

In most jobs you can actually get fired for aiding a fraud. But I suspect this would be astronomically unlikely when it comes to government bureaucrats facilitating this particular type of fraud.

When there is no penalty for malfeasance--when no one in the room is looking out for the taxpayers, so the only threat to your easy paper-pushing job is if you deny benefits to an applicant, clearly ineligible applicants will be approved for benefits virtually every time. You'll have routine fraud--aided by government bureaucrats who (one would think) are supposed to be preventing fraud.

If a private company tolerates procedures that throw away money, it soon finds itself insolvent, and fails. But when government employees give limited taxpayer dollars to people who clearly don't qualify for the program being administered, the government's response is different, and more dire: Most of the time it grabs more money from taxpayers, through higher taxes.

Obviously that's a painful choice if one pays taxes. For those who don't, no problem. But aside from hurting taxpayers (i.e. anyone earning a living in the "above-ground" economy), every tax hike drives more former payers into the underground economy. So at some level of taxation, tax revenue actually begins to fall with higher rates.

Alternatively, a government can go bankrupt. It's essentially what we've been seeing in Greece. Obviously that's a nasty scenario.

Ace isn't optimistic that the problem of government welfare fraud can be solved, unless a large number of people are fired. He notes that this is almost impossible because everyone has tolerated it for so long.

I think he's right.