Monday, August 31, 2009

A public option?

I've got no objection in principle to government subsidies for day care. We routinely hear that this is something to which we do not devote enough resources. On that point, the story about Latasha Jackson in yesterday's Journal Sentinel is instructive. Unless the fraud that she engaged in was rampant, running day care centers on state dollars must be very lucrative. When the subject is oil companies and health insurers, a 10% margin is often seen as "obscene" and somehow "windfall."

To run a Jaguar convertible and live in a 7600 square foot house, she had to be doing a lot better than that on annual revenues that had only recently reached $800,000. Unless you are independently wealthy, you can't afford a house like that without an income well into six figures.

Now maybe she did it by fraud, but it would seem that the fraud would have to be a lot more than marginal. She'd have to be saving tons of money by blatantly violating standards of care or raking in money by billing for lots of kids that she didn't care for. If that's so, it shouldn't have been so hard to catch her.

If its not true, then day care reimbursements must be quite lucrative. I would be surprised if that were so, but the story does raise the question.

Almost more surprising was the throwaway fact that Jackson's boyfriend earned $88,000 driving a van for another day care center. $88,000 for driving a van! Certainly that must be a mistake.

I understand that some conservatives will argue that this is "what you get" from government programs. I won't go that far. There is fraud in the private sector as well.

But the Jackson story ought to make us pause when we hear the idea that the public provision of goods and services is "purer" and undertaken only with the public interest in mind. Certainly the state wanted to provide day care for low income persons. But it also wanted to respond to political pressures and to do so in a way that wouldn't run afoul of the political etiquette that governs almost anything that touches the city of Milwaukee. Regulators are not "customers" interested in getting the best care for the lowest dollar, but bureaucrats who enforce prefabricated rules and only those rules that are within their purview.

Of course, Jackson was a private provider but she seemed to be entirely dependent - and satiated - by state funds that deprived her real customers - the parents of the children she served - with any incentive to shop around for a cheaper provider.


Nick said...

There IS fraud in private companies as well. The difference is that private companies have a deep interest in discovering and stopping that fraud, especially when it effects their own bottom line.

One of the reasons why private insurance companies have "such high adminstrative costs" compared to Medicare isn't because Medicare is so efficient, but rather because Medicare has an incredibly high rate of fraud, while private insurers actually try to fight it, because they have to in order to survive.

When it's someone else's dollars going to pay for the fraud, as is the case when its a gov't program, then that fraud becomes an externality that you don't have to be bothered with.

Dad29 said...

she had to be doing a lot better than that on annual revenues that had only recently reached $800,000

Depends on the expense-side of her "business."

John Foust said...

Nick, hypotheticals can be cast from all sides. One could also argue that private companies have similar deep interests in burying fraud and waste. One, there's the PR aspect. Few companies want to be seen by the public as profligate with their spending. Two, there's just as much potential for butt-covering by private managers and execs as there can be within a public bureaucracy. People hide faults that make them look bad.

Waste and fraud can exist within private enterprise. Sure, you can argue that the stockholders care at some level when the fraud or waste grows so large that it becomes visible to the stock price, or that wasteful privately-held companies will eventually dissipate their holdings, or that it'll stop when someone within the organization gives a damn. Who has the means and the motivation to discover fraud and waste, and who has the power to do anything about it? If marketing decides to spend $100,000 on promotional t-shirts, will the stockholders fire someone for it? Just how much waste and incompetence is allowed or even expected within a human enterprise? Waving an invisible wand with an invisible hand doesn't magically make the world just, fair, competent and not wasteful, any more than it magically makes any one specific business avoid these pitfalls. Businesses can survive for lifetimes with inherent waste and inefficiencies without ever being out-competed, bought-out or otherwise replaced by a more efficient business.

I'd say the real difference is that we prefer to operate our government enterprises with transparency that allows watchdogs a chance to discover the waste. It's not perfect by any means, but it's all we've got. But don't worry, soon the Journal will be out of the newspaper business and we'll rely on bloggers to conduct these sorts of investigative reports, right?

Medicare fraud exists in many forms. Clients can engage in it, but so can the private contractors. Money quote: "In July, two Medicare contractors, Blue Cross and Blue Shield of Colorado and New Mexico Blue Cross and Blue Shield, pleaded guilty to obstructing a Federal audit and paid a total of $1.5 million in criminal fines, after admitting that they had concealed evidence of their own poor performance."

Here's another. What caused them to commit fraud? Easy profit? An easy-to-game system? Lack of character? A business will rob the government, but not another business? Do you think this fraud is different than the fraud committed by contractors in Iraq?

Anonymous said...

This story makes me wonder why this is such a problem in both the government and the private sector.

Last week I was told about a guy that embezzled $75,000 from his employer before he got caught.

It appears the problem is human nature and that fewer people know the difference between right and wrong.

Our schools use to teach it but since it stopped I think these problems have grown worse. Now many people think they can do anything until they get caught.

3rd Way said...

Now many people think they can do anything until they get caught.

This country has a serious problem with trickle down morality. When people percieve that they are constantly being screwed by an economic system that encourages collusion between corporations and the public sector to ensure control over them and profit at their expense they don't have any issues with turning around and screwing the public sector or corporations for personal gain. Why would they worry about screwing the system when they percieve that the system has screwed them.

We need a strong public sector that capable of holding people accountable for misdeeds. That accoutability will only come when the public demands it.

Anonymous said...

3rd way -

I guess you're making the same point that right and wrong has been replaced in America but with situational ethics. I'm getting screwed so I'm going to screw someone else.

I hate to say it but I think that Insurance companies have a lot to do with people feeling that way. Who else hires lawyers to screw there customers? Or, teach employers how to screw there employees?

Yes, I think there are good insurance companies but it's getting hard to tell them apart.