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Monday, September 14, 2009

Cash for Clunkers a model of efficiency

by folkbum

As unlikely as it sounds, I'm linking to Hot Air (via, also unlikely, Dad29). In this post, Ed Morrissey first blows a gasket, but then reins most of it back in when his source turns out to have made a mistake. The blown gasket was over the idea that the much-maligned Cash For Clunkers program was spending twice as much on administrative costs than on the rebates to dealers--a fact which proves to be as untrue as it is absurd.

Here's Cap'n Ed's update noting the problem, and adding some commentary:
Rob Port has a corrected post, using data from Autoblog, which turns out to be more reliable than the AP:
Whoops, I read the article below a little too fast. The $1.22 billion number is the amount of rebates paid back so far. The remaining isn’t entirely administrative costs but also the amount of rebates yet unpaid. According to this article, though, the administrative costs to date have been $144 per rebate. That’s a lot of money for a simple car rebate, and with 690,000 rebates to process we’re talking over $100 million to process rebates for a program that lasted weeks. Still not every efficient.
Assuming that the average rebate comes out to $3500 (the program used a sliding scale), that comes to about a 4% overhead. That might not be bad for a health insurer, but for a rebate program? That seems like a lot of processing cost on the government end (for a worker earning $60K/year with benefits, about 5 hours for each claim), and it doesn’t count the cost of the dealer in filing and tracking the claims, either. Still, the AP article made it sound much, much worse.
That last paragraph is astounding to me. Why? Because conservatives have been using Cash for Clunkers as a truncheon with which to club the notion that a much grander-scale program, such as health care reform, could be done efficiently by the government, if they can't handle something as modest as this clunkers thing.

I've linked before to this story, in which Rick Newman writes that doctors and patients would almost certainly kill to have the kind of response from private-sector insurance companies that we saw with Cash for Clunkers. Now Morrissey adds that, by his math--and remember, he opposes the program!--the Cash for Clunkers program's bureaucracy cost was running at about 4%. And he has the gall to add, "That might not be bad for a health insurer."

Might not be bad! Are you kidding me? There is no insurance company in the country that has an overhead of 4%. Not one! The highest estimates are that Medicare, which is by far the most efficient payer in the industry, has an overhead of about 5%. You'll note reading there that the private insurance industry has much higher costs--even if you discount, as that economist suggests you should, profits and taxes.

In other words, if the federal government can run health care, and run it at the rate of just 4% of overhead, there would be billions and billions less in health care spending every year. Cash for Clunkers should be an inspiration to the private sector, not a cautionary tale about government programs.

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