Important correction: See update below.
Last night, Barack Obama insisted that the public option would keep insurers honest by competing with them on efficiency. “[B]y avoiding some of the overhead that gets eaten up at private companies by profits, excessive administrative costs and executive salaries, [the public option] could provide a good deal for consumers,” Obama explained in defending the inclusion of the key principle for progressives in the House bill. But does the Obama administration and this Congress have a good track record on creating low-overhead federal entitlement programs? Let’s take a look at the final numbers from Cash for Clunkers (via Rob Port):
Transportation Secretary Ray LaHood says the government has approved $1.22 billion in reimbursements to car dealers for sales under the Cash for Clunkers program. …
The rebates led to more than 690,000 new car sales at a taxpayer cost of $2.88 billion.
The math on this isn’t exactly rocket science. The administration blew 58% of the C4C money on overhead, leaving only 42% for the dealers and the car buyers. It amounts to $1.36 of administrative cost for every dollar in subsidies granted, a terrible conversion price for even Obama’s idea of redistributionism.
What if the Cash for Clunkers program had been a charity rather than a government program? The Better Business Bureau would likely have classified it as a fraud. According to their guidelines, a reputable charity should spend at least 65% of their money on their charitable programs and no more than 35% on internal costs. Anything less than 65% should alert contributors that the charity does not spend its money “honestly, prudently and in accordance with statements made in fund raising appeals.”
Bear this in mind when Obama talks about the low overhead of government programs.
Update: 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.