We’ve been hearing a lot lately about government benefits fraud, and the Trump administration has appointed Vice President J.D. Vance to head a new “White House Task Force to Eliminate Fraud.”
Government benefits fraud is an enormous problem. It plagues all federal benefits programs to one degree or another, like Medicare and Medicaid, Obamacare, Social Security Disability, the Supplemental Nutrition Assistance Program (SNAP) and the Children’s Health Insurance Program (CHIP). Government loan programs are also susceptible to fraud.
Politicians of both parties routinely promise to cut down on “fraud, waste and abuse,” and this sounds good to voters because we know in a government that spends this much money, there must be an awful lot of fraud.
Fraud is a misuse of taxpayer dollars, so of course cutting down on fraud is good. So, we cheer the Trump administration’s efforts to identify fraud and prosecute fraudsters. Go get ‘em.
But the problem is that fraud is inherent in government, because incentives in government are completely different than in the private sector. You can’t “run government like a business” because government isn’t anything like a business.
In a recent hearing, one expert witness estimated that the public sector experiences fraud at a rate of about 20 percent, compared with about 3 percent in the private sector. The private sector does a great job of preventing and identifying fraud because in the private sector saving money is good. Saving money leads to some combination of more profit for shareholders, more jobs and higher salaries for employees, lower prices for customers, and more money to invest in growth. Everyone involved is incentivized to prevent fraud.
But in government, the incentives are the opposite. No one in the chain is incentivized to prevent fraud. In government, the more money you send out the door, the better. The more you spend, the more you get. The bigger your budget, the more employees you supervise, the more influence you wield and the more indispensable your program becomes. Everyone is happy.
And if you delay or refuse to send that check to that recipient, they get angry. They complain. Maybe to their member of Congress. And now the politician is mad at you.
Government programs generally operate under a “pay and chase” approach. Government writes the check, pays the benefit, or issues the loan first, and then if the public becomes aware of massive fraud, government reluctantly goes into chase mode.
In the private sector, there are up-front screens to prevent fraud in the first place, rather than pay and chase. Because the incentives are completely different.
The real problem is big government. The bigger the government, the more opportunities there are for fraud.
That’s why at IPI we argue for limited government, not better government. Better government is nice, sure, but also not very likely.
Today, many so-called conservatives have fallen for the temptation that big government is great as long as they are running it. But that’s a mistake.
The Founders designed a system of limited government, because limited government prevents a multitude of sins.