Thursday, June 11, 2009

On Private v. Public

Judge Smails writes in:

It seems to me there are only two reasons to favor a public plan that competes with the private plans. Either:

(A) you think that both public plans and private plans have advantages, and setting them in competition can enhance these advantages; or

(B) you really want a single-payer plan, but you know it's not politically viable, so you think this is a route toward that.

Obviously, (B) is just political strategy. Set that aside.

The problem I see with (A) is not on the merits. Public plans have certain advantages (market share bargaining, for one); private plans have other advantages (a profit motive for innovation in management, for one). In theory, making them compete could get both of them to perform better, and derive the benefits of each type.

The problem is that, if not structured perfectly, we could end up in an equilibrium in which either everyone went to the public plan or everyone went to the private plan. At first glance, that seems like a win: the market let people decide, and the market scored the outcome. But if the market scores for the private plans, then the public plan will undoubtedly be subsidized by tax money to stay afloat. It will be too big (economically and politically) to fail. Which just makes it GM vs. Ford, with all the negative consequences.

And if the public plan wins, then we effectively end up with single-payer, which might be better for any individual, but is a net loss for society because we lose out on the innovation that comes in hand with profit-driven greed, as well as the ability of private plans to keep the public plan in check when it starts doing things that only work in a monopoly (rationing treatment, etc.).

If you really believe that public and private plans offer unqiue advantages, and that putting them in competition yields another advantage, then having one win out over the other is not really a victory for consumers or taxpayers. It's a market failure. Public or private, a monopoly will reduce the long-term benefit of the system.

I'm not sure I agree with all this. First, the supposition that if the private plan wins then the public plan will undoubtedly be subsidized by taxes is misleading in that private plans are currently subsidized by taxes and other indirect costs. Private plans don't cover everyone, so a lot of uninsured people get treated by hospitals, which pay that cost. Likewise, the government is already subsidizing many people's health care, via Medicare & the VA system.

But I really don't agree with the idea that greed leads to innovation, certainly not in health care, and probably not as a general concept. I'm not saying that greed can't or doesn't lead to innovation, but rather that a lot of other motivations do too (and probably lead to better innovation: I mean, just look at the three-card-monty that was Wall Street over the past however many years -- sure, there was a lot of greed-driven "innovation," but it was all crap). I can't imagine that armies of scientists and doctors are suddenly going to leave the bench and bedside, or just stop trying as hard, should there be a public health care option. Speaking both personally and for a lot of scientists who work in various biotech-related fields, we're not in it for the money (if we were, we'd have chosen our careers quite poorly).

Also, Judge Smails seems to imply that the free market of public vs. private will inevitably produce a winner and then we'll be stuck with someone having a monopoly. Not sure I buy this, but I certainly don't buy the notion that only in this scenario will we be rationing care. We already ration care, quite blatantly! I've never had a whole-body PET scan, I've never had my genome sequenced, I've never been tested for all sorts of rare metabolic disorders that could strike a 31 year old male at any minute.

In sum, I don't want a single-payer system. I want to see a public system that can compete against a private system, and in doing so prove itself. If the result of that is a single-payer system then I am fine with the outcome, because only because it resulted from the appropriate experiment. My hypothesis is that health care isn't like buying a new cell phone, and thus standard free-market assumptions do not apply.

We talk about the moral hazard of the government bailing out GM & banks & such, and many of us get upset because we think they should be allowed to fail -- or perhaps better said, they should have been prevented from getting so large that they could fail without ruining many innocent bystanders in the process. But health care is not a business, it is a basic human right -- it is promoting the general welfare -- and it is the government's job to take care of everyone in this regard.