Wednesday, September 02, 2009

Public option and larger purposes

In response to my last post on health care, one commenter wonders why I am not reassured by the fact that public education hasn't eliminated private education. Doesn't this show that a public option won't crowd out private coverage?

I think this compares apples and oranges. A better comparison would be public v. private hospitals. A public coverage option to the extent that it becomes pervasive will affect the incentives for technological progress because it will tend to affect the market generally. It will tend to drive down the reimbursements to private health care providers (not insurers) in a way that stifles the incentives for innovation and that rations care through indirect means (wait times and reimbursements based on some centralized notion of "quality").

There could be, I suppose, clinics and hospitals that refuse to accept government insurance or to conform to its limitations. To the extent that the public option - because it is artificially cheaper - becomes pervasive, most people won't have access to it. That is consistent with the experience in many "universal care" systems and, indeed, is not entirely different than what happens with education (at least in the absence of vouchers.)

But the problem is deeper than that. There cannot be innovation for a private sector of the market that is too small to support it. Education seems different in that regard. One of the constant themes in the left critique of market economics is a failure to see what will not happen when the market is constrained. That's happening here as well.

Another commenter, TosaVoter, asks the following question:

I’d like to ask him a question. It’s a false choice, but then Shark himself asked a similar question so I think it’s fair: If God himself appeared before you and said, before you get into Heaven, you must answer this question: which would be your greater priority – the private market system and the health of private insurance companies, or patients?


That's easy to answer. It would be the patients. The test of the market is whether it produces a better outcome than a nonmarket system would. But that question can't be answered by finding market outcomes we don't like and then demanding that the government fix it by fiat without hurting anything else. Economic reality has a tendency to get it the way.

This whole debate has been about whether to throw out the baby with the bathwater. I say no.

23 comments:

Anonymous said...

Pfizer's been fined more than two billion dollars for its fraudulent treatment of seniors on Medicaid. And you're worried about throwing the baby out with the bath water?

Anonymous said...

There are so many non sequiturs and unsupported, and unsupportable, statements in this post that it is difficult to know where to start to respond. You assume that only the private sector innovates. This is, simply, wrong as a matter of fact. Academia (including public institutions) and the NIH are responsible for an enormous amount of health care innovation -- perhaps the majority. Ever hear of stem cell research? Did that come from Pfizer, or researchers at the University of Wisconsin? Outside health care proper (although it has great implications for health care), how about the medium through which we are communicating, the Internet? Was that devised by AT&T, or that nasty old Gummint?

To suggest that "there cannot be innovation for a private sector that is too small to support it" -- where does one start? First, you posit long queues to wait for Gummint-mandated health care, but, curiously, everyone will be gravitating toward that crappy, cheaper Gummint health insurance, and the private sector will wither on the vine. That assumption is simply false (and I do think it is belied by the analogy to public and private education). But then innovation has also withered away, in your dystopian vision, because only the private sector innovates, and Gummint's monopsony power leads to "artificially" cheaper prices. If the Gummint can provide some competition to the very high concentration currently existing in the health insurance market, what's artificial about the resulting price competition? f

There certainly can be innovation in a health care market in which there is a public option. But, whether health insurance is public, private, or a mix, there is a fundamental problem of rising costs, and incentives for innovation are to some degree in tension with the need to control costs. Give health care consumers carte blanche (through insurance) to buy health care, the market will innovate, true, but costs will continue to go through the ceiling. It's the problem of "grocery insurance": if the consumer has no incentive to shop price, indeed no knowledge of pricing, why wouldn't he buy filet mignon every time? Eventually the insurance becomes prohibitively expensive, and fewer and fewer can afford it. That's what we're seeing.

Perhaps the answer is considerably expanded use of HSA's, giving health care consumers more incentive to shop price for routine or predictable health care expenses, coupled with universal enrollment in competing public and private health insurance plans (subsidized according to income) for catastrophic health care expenses.

John Foust said...

I think if we asked Jesus, he'd tell us to take care of the sick and the downtrodden and he might even have suggestions about which budget items to cut to pay for it, and he'd say that if you took your blinders off, you'd realize there ain't much free market in almost every aspect of health care and health insurance. I bet the Pope would say the same thing.

Why do you keep talking about the free market when our nation's health care system is already peppered with innumerable and extensive capillaries of perverse incentives and disincentives introduced by government oversight often guided by the money of industry lobbyists, and that the effects are worldwide? I'm not saying this is a justification for new distortions... but to what extent are you arguing about the wallpaper pattern while the house is on fire?

When the subject is war spending or government sponsorship of religion, where's your discussion of the unintended side effects as a justification for taking no action?

Seth said...

"This whole debate has been about whether to throw out the baby with the bathwater. I say no."

BS, Rick. You've even said Wyden-Bennett is a more promising piece of legislation, which amounts to throwing out the entire tub. This debate for you is about two things: 1) the word "public" in public option, and 2) dealing a defeat to Obama (hence your routine quips about the president's statements while short-changing what he actually said).

Anonymous said...

Hypothetical: The University of Wisconsin Law School (a public institution), impressed with our esteemed blog host's innovative legal reasoning, offers him an endowed chair in Innovative Legal Reasoning. Let's just suppose this is at triple his Marquette pay. (This is a hypothetical, remember.)

Does he accept?

If he does, what is the peril to his ability to think innovatively? Would the conservative cause in Wisconsin be lost?

Anonymous said...

"If God himself appeared before you and said, before you get into Heaven, you must answer this question: which would be your greater priority – the private market system and the health of private insurance companies, or patients?

That's easy to answer. It would be the patients."

If the health of individuals is the key, then can you tell us why it is that the US, the only developed country in the world, lags behind all other developed countries, with respect to healthcare stats for preventable diseases? Why we are ranked 37th by the WHO, for our health systems? And why 45 million people in this country have no health insurance at all, and therefore no access to medical care unless it is an emergency?

Anonymous said...

This is curious. The only people who are replying to your post are liberals. Where are the usual conservative suspects? Where's Dad29? (I still want to know if he's on Medicare. He refuses to say. What does that mean? I think he's enjoying that Gummint health care.)

Maybe they're all out calling their school board members to prevent the socialist indoctrination that's going to happen next week when the President addresses schoolchidren. In my school district, the superintendent has caved: since the superintendent can't censor the President in advance, the President, of the United States, will not be allowed tp address the schoolchildren of our school district.

Enough on public option already. Let's hear about socialist indoctrination by the President. Michelle Malkin is ahead of you on this one, Rick. Perhaps you're preparing your post?

Anonymous said...

"The President, of the United States, will not be allowed to address the schoolchildren of our school district."

Absolutely disgusting. Republicans make me ill.

Anonymous said...

Anon 10:16

Ask me if I care.

Anonymous said...

Obamacare supporters:

Help reduce healthcare costs. Don't bite off the fingertips of those who disagree with you.
Costs money to fix it.

Anonymous said...

That guy who had his fingertip bit off had Medicare. And he was protesting against public health care for other people.

I guess he's got his, and screw everybody else.

Dad29 said...

why it is that the US, the only developed country in the world, lags behind all other developed countries, with respect to healthcare stats for preventable diseases? Why we are ranked 37th by the WHO, for our health systems?

Yup. That's why you notice millions of people fleeing the US daily to get healthcare anyplace else they can!

John Foust said...

Sorry, Dad29, I'm pretty sharp when it comes to spotting curmudgeonly sarcasm! If I follow your logic, because the US-of-A has some of the world's best health services available to anyone in the world who can afford to fly here, stay here, and pay top-dollar cash, therefore everything else is good and right with our system and no adjustments need be made?

Or were you not being sarcastic and just referring to John Torinus's suggestion that we fly to India for better prices on procedures?

And what's your personal perspective on Medicare and other government hand-outs, as per some anonymous inquiry above?

Rick Esenberg said...

Of course the government "can" innovate. I don't recall saying that it can't. What I did say - and believe - is that there will be a lot more innovation in a society with multiple sources of innovation and financial incentives to do so. If you disagree with that, our differences are ontological.

The danger is not that "people" will gravitate toward government care but that the market power of government option will be used to control prices and drive private insurers out of the market. In the long run, I think that's a bad outcome. It will result in less medical innovation and in the rationing care from the top down rather than the bottom up.

Of course, we don't have a very good market for health care. But that doesn't mean we should give up on the idea.

I am not sure that Wyden-Bennett is the answer but I don't think it would be throwing out the tub. The idea is to retain the idea of a market for insurance with the purchase decisions to be made by the insured rather than an intermediary.

Anonymous said...

For the life of me I don't understand Rick's paranoia that if the Government enters the market, as one player among many, it'll drive all private insurers out of business, and lead to less medical innovation. (By the way did you see the article in today's Journal Sentinel about the Madison company that got the National Cancer Institute research grant for innovation? Guess the private sector didn't generate enough funds for the worthy project in question.)

The fundamental problem the public option is designed to fix is the problem of the increasing cost of health care as a percentage of GDP. But all health care insurance solutions -- whether public or private -- suffer from a major defect, which is that the consumer of health care, the one who actually makes the health care purchase decision, has absolutely no clue what it costs. The insurer is the intermediary that pays for what the insured purchases. What about cutting out that intermediary, when possible?
There's an excellent article in this month's Atlantic, "How American Health Care Killed My Father," that makes a strong case for significantly expanded health savings accounts. Let consumers buy routine health care with their own money, and deal with catastrophic costs through a marketplace of competitive insurers (and no, Rick, a Gummint option wouldn't kill innovation or become a monopoly or monopsony). That'd bring costs down. Where consumers can shop price -- as in the example of Lasik surgery, typically not covered by insurance -- price comes down. Perhaps HSA's could be funded through a mandatory payroll deduction; and there could be subsidies for catastrophic insurance on a sliding scale based on ability to pay.

I'm glad to see Dad has resurfaced. He's keeping mum, though, about his Medicare coverage. He just won't admit he's got that Gummint insurance! (I'll bet he even likes it.)

Seth said...

I am not sure that Wyden-Bennett is the answer but I don't think it would be throwing out the tub.

Wyden-Bennett would set-up heavily-regulated regional exchanges where individuals would purchase health insurance, much like the leading plans in Congress today. Of course, conservatives don't mind Wyden-Bennett because all of the options in the exchanges would be private.

But the bigger goal that Wyden-Bennett has is abolishing employer-provided health care, thereby creating individual-only markets -- albeit, again, heavily-regulated, which would theoretically make them more functional than our currently dysfunctional individual marketplace.

I actually think that approach makes a lot of sense, at least on paper, but I don't think there's any question that it's a more radical approach than the leading plans in Congress today. So if your true concern is the potential unforeseen ramifications of reform, there's just no reasonable way you could think Wyden-Bennett is a better choice than what's being considered by Congress today.

For the life of me I don't understand Rick's paranoia that if the Government enters the market, as one player among many, it'll drive all private insurers out of business, and lead to less medical innovation.

It was going to be the same with Medicare, now a sacred cow of the right, apparently.

Anonymous said...

So sacred -- like the name of the LORD, which may not be mentioned -- that Dad won't even say that he has it.

reddess said...

They couldn't reattach his fingertip anyway.

But WHY would someone in their right (or should I say left) mind go to that extreme?

Anonymous said...

Evidently the "victim" punched the finger biter in the face, and a fingertip landed in the guy's mouth, whereupon he bit it off.

Dad29 said...

Sorry, John. Since you're working hard on your Obtusity Badge, I'll have to work harder.

Ergo:

The USA attracts millions of immigrants, some legal, who flock to the US so that they can enjoy early death from preventable disease, and so that they can be denied medical assistance at every possible turn. After carefully studying the (unquestionably reliable) WHO rankings, these folks chose the US.

So, obviously, they are idiots!

Dad29 said...

One more thing--for "Anonymous":

My mother always told me to mind my own business--so I do.

Apparently your mother was a bit deficient in the way she raised you--if you have one.

Anonymous said...

Dad, how do like Medicare? Does it pay for the health care services that you need? Do you have any hassles over reimbursement for needed expenses? Do you get any flak because a condition may have been preexisting? In short, do you like it?

Why do you want to deny insurance coverage like this to others?

Nick said...

Actually, I think the comparison of private vs. public education is an apt one, mostly because people who use private education, still have to pay subsidies into the public education system they don't use.

What that means is that it prevents lower middle class and even middle class people from gaining access to a private system they may prefer b/c they can't afford to double pay.

One of the problems with the debate on both education and health care, is that it focuses on the extremes too much. Rich people shouldn't complain because they can afford to double pay. And we have to worry a lot about poor people because they can't afford a private system no matter what.

However, the people who tend to be left out of the debate are those people on the margins. By creating a public option like what is being talked about, it will force people who might normally afford a private system to go to a public system because the incentives or taxes are perverse enough that it becomes financially more viable.