Any business or any government bureau that’s handling money has to have ways to watch that the proper amounts of money go to the proper people. This takes MONITORING. One has to observe transactions, keep a record of them, and then examine them to check that the right payments have been made to the right people. This has to be done systematically.
Monitoring is not free. It’s a costly activity. There are monitoring costs. If one person has to be paid to monitor one other person, the monitoring cost is excessive. Obviously, this is not typical. And who is to monitor the monitors, one may ask? There have to be systems in place that stop the process at some point. There have to be safeguards built in that make people fearful of being apprehended if they collude and attempt to beat the system. There have to be independent auditors and verifiers.
As the number of transactions rises, the monitoring costs rise. Think about how Medicare increases the number of medical transactions subject to possible fraud. Did those who passed this program have any idea that they were opening a Pandora’s Box of potential fraud? Did all those liberals who wanted health care for everyone, even if it took government theft by taxation, have any idea that, as a purely “business” matter, they were creating a locus for massive amounts of fraud? Did anyone at all realize that the sheer size of the medical transactions in the economy to be reimbursed by Medicare was so enormous that the government could not possibly monitor them? If the government attempted to monitor all these transactions against fraud, the monitoring costs would doom the whole scheme! The government would literally be forced to allow a substantial degree of fraud simply because it could not spend what it would take to monitor the frauds.
You may be wondering how private insurers survive against fraud if Medicare has all this fraud. The answer is very simple. An auto insurer, let’s say, will possibly experience a fraudulent claim for an accident. An accident is the exception. By contrast, Medicare reimburses all sorts of routine medical claims. The number of claims and medical transactions that Medicare processes is much larger than what an ordinary insurer processes. Under Medicare, all medical claims become the playing field for fraud.
The resources to monitor all these possible claims can never be enough because the monitoring costs would be out of sight.
My next post provides an example.
