Wednesday, June 24, 2009

Is there an echo in here?

In today's Wall Street Journal, Robert Reich writes an op-ed arguing for the public health option. The essence of his argument is that the government can be the model of efficiency the private sector apparently lacks.

"If the public option pushes private plans to trim their bureaucracies and become more efficient, that's fine."

I have just one word for Mr. Reich:
de-lu-sion n. - a persistent false psychotic belief that is maintained despite indisputable evidence to the contrary


Phillip said...

The fat that a public option would cause the private sector to trim is the background investigation of customers. A substantial amount of private insurance operations are dedicated to finding candidates that may not profit them enough to warrant the risk and to raise the prices on those who are somewhat riskier. Obviously, this increases the prices for all customers since it is overhead. I think the idea is that with the public option, which rejects no one, would provide adequate incentive to mitigate the process, lest the private companies go out of business because of a quality, frugal option.

I don't think it is delusional, however I have my doubts about how it would play out.

Adam Freund said...

The crux of Mr. Reich's comment is that the government is inherently more efficient than the private sector. When is this generally true? Anecdotally, most people agree that the government is exceedingly inefficient.

Also you can use your same logic with regards to profits. Since the government doesn't need profits that is just overhead to it and can be eliminated. Would you agree with that statement?

Phillip said...

The crux of Mr. Reich's comment is not that government is inherently more efficient, but that it could force the private sector to become more efficient. I agree that in general the private sector is more efficient.

Since the government is a non-profit entity (well, supposed to be, but that is an entirely separate issue), profits are not a concern. The buyer would pay into the system, which would likely go into their budget to cover overhead and expense. The vast majority of their money would come from the general budget. It would never be designed as a financially self sufficient program because a profit motive is what is trying to be overcome so that all who want/need health insurance can have it. That lack of profit motive and massive funding from the general budget would enable them to offer competitive pricing, which would in turn force private costs down.

So if I understand your comment correctly, yes I do agree that there would/should only be overhead to a government program.

Adam Freund said...

You and Mr. Reich are assuming a priori that the insurance companies are inefficient. For government to set an arbitrary price implies that they somehow know the correct price. how does anyone figure that price out?

Profits and losses (i.e. negative profits) serve a very useful and misunderstood purpose. They serve as a price discovery mechanism and consequently tell society what it should produce. I'll have to write a post on it.

As a side note, why not support just giving people money to buy health care?

Phillip said...

There is no assumption that the insurance companies are inefficient in their current markets. Given the status quo they are behaving how they should to maximize profits and minimize loses (I actually considered working for Humana). The mechanism has worked in that market. The introduction of the government alternative would change the market environment and the companies would then adapt to maximize efficiency in their new environment. The price discovery mechanism is a fundamental tenet of capitalism and obvious. I would think that when you change the environment, the readjustment would be obvious too. In business, not all methods are equally efficient (and as important, effective) in all environments. Thus the private sector would have to become more efficient (however, likely less effective) in the new environment.

I am torn about the idea of just giving money to people, because some people are essentially un-insurable given their pre-existing conditions unless they can get into a group plan. My cousin had colon cancer at age 24 (27 now), she currently has no insurance and could not even get a quote from an insurance company. It does seem like a good step for improving the current situation -- however I think that the issue would become so divisive and a more permanent solution (whatever that may be) would be lost for an unsatisfying compromise.

These are tough calls. I just thank my lucky stars (and back-breaking efforts) that I have a good job, great benefits and the luxury of reasoning these things out on blogs :)

Adam Freund said...

Describe the how the new environment will change things. I don't understand your reasoning.

For your cousin I would advocate the government (or charity or family) giving her the money directly. As they say, "hard cases make bad law." Perhaps if we gave people money for their whole lives they would not fall into that situation. The difference between this plan and a government "option" is that the individual is responsible for their health care.

Your cousin would be no more insurable in a group plan than as an individual. All that is happening in a group plan is her health care expenses are being subsidized by the other members of the group. This is not how insurance works. Insurance does not work on an after the fact basis.

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