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Entitlement Programs: "models of bureaucratic efficiency"
Posted by: Jon Henke on Sunday, April 16, 2006

Tom Elia at The New Editor doesn't think our welfare and entitlement programs are exactly models of efficiency...
"Our country's entitlement programs are models of bureaucratic efficiency." [Ezra Klein, in The New Republic]

Thus speaketh The American Prospect's Ezra Klein in a subscription-only piece in The New Republic criticizing Charles Murray's proposal to scrap our present entitlement system with one that would pay every citizen $10,000 per year. [...] Our entitlement programs are efficient? Not by a long shot, Mr. Klein.
I think the problem here is a mix of measurement and uncertainty. It may be, as Klein argues, that "Social Security spends less than 1 percent of its budget on administration" while Medicare spends "2 percent", compared with "private health insurers, who blow about 14 percent on administration." But — leaving aside the, ah, questionable returns that we consumers are getting for our payments to SS and Medicare — there are a lot of areas of efficiency worth measuring and some evolutionary efficiencies that only a free market can find. A couple areas...


So, Social Security and Medicare have less administrative overhead. Fine. But the Social Security and Medicare administration's are not charged with turning a profit for shareholders, with finding new efficiencies, or with any of the myriad other dynamic evolutions and productivies that a competitive market produces.

In a few decades time, private entities will evolve in barely seen new directions, with so-far unimagined new products, services and processes. That's what we call progress. Social Security and Medicare, on the other hand, will still be the same, albeit somewhat less solvent.

Arguing that SS and Medicare are more efficient is somewhat like arguing that the whole evolution thing was a bad idea, because, while we're coping with problems like "New York, wars, and so on", the dolphins spend all their time "muck[ing] about in the water having a good time". Clearly, there's just too much overhead in this whole "evolution" thing and we should have never come down out of the trees. (again, I'm mixing metaphors and Adams)


So, "private health insurers [spend] about 14 percent on administration". And they can afford to do that because they're pretty cheap about paying out on claims. That 14 percent is going to pay the salaries of people who would rather keep money than spend it on you. I mean, that's the incentive for them — make a lot of money, hold onto it for dear life.

Medicare, meanwhile, doesn't have that kind of incentive problem. But Medicare does have an incentive problem. Since they don't spend 14% on the administrative overhead, guess what Medicare does spend a lot of money on?
  • Fraud!: "In 1996, GAO estimated that health care fraud cost the industry between $30 and $100 billion. The OIG estimated the Medicare error rate at 14%, or $23.2 billion." That's gone down since '96, but with the Prescription Drug benefit there more opportunities inbound!

  • Waste! "Dartmouth researchers estimate that as much as one in three dollars spent by Medicare goes to unnecessary care."

  • Quality Reductions! [based on peer reviewed research] "the observed relationship [between] spending and medical outcomes is negative — and [Medicare] has an estimated 20% waste that provides no benefit in terms of either survival or quality of life."


The free market has a lot of fairly obvious costs. But, as is ever true in a free market, competition relentlessly drives us towards a more efficient and/or more effective state of affairs. Government, on the other hand, just keeps dispensing cash. And while Social Security may indeed spend "less than 1 percent of its budget on administration", I'd guess that private firms could undercut that and they'd line up for the chance at the contract.

Am I wrong? Perhaps. But we'll never know, because our "models of bureaucratic efficiency" have decided that things are just fine the way they are. Progress is for the birds...and other higher mammals. But not, apparently, for the Progressives.
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Previous Comments to this Post 

"Social Security spends less than 1 percent of its budget on administration"
Well, if you were to approve everything or deny everything then I imagine that administrative costs can be rather low.

If you don’t bother to keep accurate records, you can keep admin costs low.
Written By: Mark A. Flacy
URL: http://
mark’s is an interesting point. It seems there are some private companies that follow the government’s reasoning. "Buy a computer from Compaq! We spend as little money as possible on customer service! That means we’re a good company!"

I kid, Compaq, I kid. Please continue to work, little laptop (at least until June, then you’re out on your ear).
Written By: jinnmabe
URL: http://
The huge corporations I’ve worked for ( banking, insurance and defence ) are *extremely* wasteful. You can quote their cost breakdown numbers if you like, but those numbers are quite cooked. You would be amazed at how much executive compensation is left out of the administrative cost column and shuffled into some other cost category. Failed projects aren’t considered administrative costs, even though upper management stuff their pockets with money from those projects. Fraud in business is so much easier to hide then in government, because business is private by default.

Government is only as good as we are. We *must* keep on top of what the it’s doing, or "bad people" will take if from us. If all we do is b*tch about the government, I guarantee this whole experiment called the U.S.A. will fail.

It’s pointless to get all p*ssed about government waste on social spending when we’re getting royally screwed by collusionary, practically monopolistic big corps. Cut em down to size and get those capital gains taxes back up, we’ll all do a whole lot better. ( I know this contradicts 25 years of corporate propaganda. If you’ve internalized that propaganda... try to free yourself. )

Pulling the chain of the "little people," getting them to fight each other over table scraps, it’s the oldest trick in the book. Read Machiavelli.

Stop looking at American politics through the filter of "left v. right." *That* is the greatest distraction of all. What we see on T.V. is not America. The vast majority of us would agree about the most important things, if we could avoid the distractions the corporate owned MSM throws at us, and free ourselves from the grip of the fear they use to paralyse us.

Written By: Harold Samualson
URL: http://
Failed projects aren’t considered administrative costs, even though upper management stuff their pockets with money from those projects.
Uhh, yeah....

What line of business do you think that you are commenting upon?
Written By: Mark A. Flacy
URL: http://
Ezra was on CNN this am... made a helluva case for entitlement programs - as they have been. Problem was, he didnt address how they should be in the future. In fact, he sounded just like a classical conservative...
Written By: bains
URL: http://
Got it, Harold, corporate bad, government good. Are you sure you’re in the right place?
Written By: jinnmabe
URL: http://
Everytime I read something of Klein’s - which isn’t often now - I’m struck by the lack of considered thinking. He just doesn’t. He waves his team flag and cheers. Why does anyone pay attention to him?
Written By: Unknown
URL: http://
Just a few years ago, federal organized crime investigators found that "the mob" was now moving into healthcare.

It turns out that that agent that works for a healthcare insurer gets a commission for the sale of a healthcare policy. Better yet, the agent gets the commission each and every year that the insured has the policy. The percentage are up to about 14% of the policy cost (that number sounds familiar).

"The mob" was using it’s influence with various unions to become the agent for the healthcare policies that the unions were buying for their membership. And it was all perfectly legal, as the policies were with legit healthcare insurers.

I wonder .. does that 1 or 2% for SS and Medicare include costs to "sell" their services through public service announcements, etc. ?
Written By: Neo
URL: http://
"What line of business do you think that you are commenting upon? "

The pocket stuffing I saw was in the health insurance industry, the project involved marketing. And I’m not going to give specifics because I’m still in the industry.

" Got it, Harold, corporate bad, government good."

Then you didn’t get it at all. My point was:

Big corporate wasteful. Government as good as we force it to be, no better.

And I’m never in the right place. Everyone wants to hear what they already think.

If any of you have ever started a business, you ought to know that bigger competitors aren’t your buddies. Don’t give me grief about being anti-business, I’m saying huge corporations are going to kill free enterprise.
Written By: Harold Samualson
URL: http://
WASTE FRAUD AND ABUSE in a government agency! No waaaay!!
Written By: kyle N
The huge corporations I’ve worked for ( banking, insurance and defence ) are *extremely* wasteful.
No doubt. But the free market has an automatic correction mechanism for waste. When waste is excessive, businesses go under. Conversely, in government, excessive waste produces more funding. There’s no hard incentive to reduce waste.

And bear in mind, waste isn’t just seen spending. Waste can also include foregone opportunities, foregone efficiencies, etc.
Written By: Jon Henke
The huge corporations I’ve worked for (banking, insurance and defence) are *extremely* wasteful.
Well of course they are! These are three of the most highly-regulated, government-dependent industries in the country.
If any of you have ever started a business, you ought to know that bigger competitors aren’t your buddies. Don’t give me grief about being anti-business, I’m saying huge corporations are going to kill free enterprise.
Adam Smith made a similar argument, only he recognized that such big corporate entities needed the assistance of a favorable government to stifle their competition and thus allow for their bloated growth.
To widen the market and to narrow the competition is always the interest of the dealers ... The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted, till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.

The Wealth of Nations, Book I Chapter XI
In other words, "huge corporations" aren’t the threat to free enterprise per se; it is instead the big government that protects and nurtures such corporate interests that is the real threat.
Written By: MichaelW
URL: http://

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