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I was reading a debate on healthcare in the recent Newsweek. The prominent Democrat supported some sort of national healthcare while the prominent Republican supported more of a free market approach. Most people will probably take sides based on their assumptions about government efficiency versus market efficiency.

An old joke that works as its own punch line goes "I'm from the government and I'm here to help." Most people in this country reflexively believe the government will screw up anything it touches. There's plenty of evidence for that view.

But I wonder if government can be more efficient than the free market in specific situations, specifically in situations where the service is more about software than headcount, and where nothing needs to be invented.

Imagine a situation where you are deciding if a particular service should be handled by the government or by a hypothetical free market dominated by three players. The government's incentive is to provide the service as cheaply as it can. Any company's incentive is to transfer the greatest amount of money from consumers to stockholders. And to do that in a competitive industry you usually end up with what I call confusopolies. A confusopoly is a situation in which companies pretend to compete on price, service, and features but in fact they are just trying to confuse customers so no one can do comparison shopping.

Cell phone companies are the best example of confusopolies. The average consumer finds it impossible to decipher which carrier has the best deal, so carriers don't have normal market pressure to lower prices. It's a virtual cartel without the illegal part.

The advantage of a free market system is innovation. The market has an incentive to try new things. Governments prefer to avoid risks. If you need innovation, you want the free market.

In the case of national healthcare insurance, I ask myself these questions:
  1. Is it more about software than headcount?
  2. How important is innovation?
  3. Is the free market for this service a natural confusopoly?


Before you call me a socialist, I don't have an informed opinion on national healthcare. But I also don't have an automatic bias in favor of a free market that gave us Enron, WorldCom, Madoff, derivatives, and mortgages to hobos. I think you have to look at the specifics.

 
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May 8, 2009
I don't think we need the government running health care. The problem is everyone is looking for someone else to pay for their health care so they don't have to bear the brunt of it. Government can point a gun at folks to force them to pay, or to provide their services at a cost than they might otherwise charge, but you get the level of service that you would expect from forced labor.

What I think might help would be to not allow insurance companies to interact directly with medical providers- the patient. The patient would need to negotiate with the provider, then seek compensation from their insurance. That way the consumer of the services is directly involved with the costs and can negotiate them the way they see fit.
 
 
May 8, 2009
another is an idiot. pfft- cat's claw. What a maroon.
 
 
May 8, 2009
I haven't seen anyone make this point yet, so sorry if I missed it. According to several sources e.g.:

http://works.bepress.com/christopher_robertson/2/

around 49% of foreclosures through the credit crunch have been related to medical bills in the US. To my mind, this must have helped the snowballing financial effects that have caused the credit crunch in general, which have reverberated around the world.

So we might say that your (I am British) lack of health coverage in the US has messed up the the finances of nearly the entire globe. Maybe hyperbole but possibly not far wrong.
 
 
May 8, 2009
Your theory is based on one contestable premise and one false premise:

1. The contestable premise is that the government's goal is to reduce costs. We're talking about a government that almost never balances its budget and rarely even finishes its budget on time. The "government" as such has no goal; politicians have goals, and their goal is to stay in office and increase their own power. Kickbacks to their home base is are a great way of doing that, and those would blow up the cost of state-run health care.

2. The cost of cell phones has in fact been greatly reduced by competition and efficiency-promoting regulation. While customers don't generally do a very good job of tallying up hidden costs or computing their exact cost per minute, they do notice things like "nationwide free long distance" and "free nights and weekends," which really do bring down the consumer cost. If you want to see what cell phones look like without competition, go to Mexico. There, you still pay roaming, you still pay long distance, you still pay by the minute, and someone calling you on a land line has to pay the cell phone company, too. As a result, a cell phone is far more expensive there than it is here.
 
 
May 8, 2009
How about government stupidity:

Prior to about 15 years ago, our local government ran the only power company in the area. The service was good, the power stayed on, the fees were reasonable, and the increases were minor. The problem was, the government did not see this as a money making organization, and decided to sell the utility to a private corporation. The promises were many, including no layoffs, that the power prices would remain steady or even decrease, and yet none of those promises have been kept. The utility currently asks for an receives two 10% rate hikes per year, which the government approves, the top executives are receiving huge bonuses, and record profits are being recorded,

The services have failed miserably, mostly attributed the the four waves of layoffs by the corporation, and failure to provide preventative maintenance to the equipment. Major power outages occur several times a year now, leaving hundreds of thousands of people without power for weeks, to the point that in an emergeny now, the power corp tells customers to stop calling. Four years ago, 12 of the large transmission towers fell, the culprit according to the power corp, HEAVY SNOW. Two years ago, widespread power outages, the culprit, SALTY FOG. Both are situations that have always been present in our area, why are they a problem now?

The power corp is now considered a joke by the millions of people that are forced to pay for their power every month, but are left with no alternatives with this monopoly. It is the belief of many that this utility would have been better in the hands of the government, as it surely could not have gotten any worse.
 
 
May 8, 2009
I knew when I saw the topic that it would spawn a Monkey Dance, but = WOW!

I'm taken aback by the amount of FEAR that is being expressed in the comments, by both sides of the debate.
- Fear of the existing system not providing what you need, if and when you need it.
- Fear of some theoretical, hypothetical system not providing what you need, if and when you need it.
- Fear of (and Priding in) the Canadain system not providing (or projiding) what you need, if and when you need it.

I suppose I shouldn't be surpised - it's the fear of death, after all. Probably our strongest fear, and thus the easiest button to push to get us to do what someone else wants us to do. Which is why "reform" is probably unlikely.

I'm also taken aback by how much IGNORANCE there is in how the current system works.
- Ignorance of how insurance companies work (income, investments, ,payments, reinsurance, etc.)
- Ignorance of how and how much a doctor / pharmacist gets paid,
- Ignorance of how new medical products come onto the market, and are paid for by the THREE major players in the system (insurance co's, government (Medicare, etc), and out-of-pocket).


Scott's right. The ignorance is caused by the existing Confusopoly, although any system that replaces it (gov't, private, or hybrid) will likely continue the practice of confusion. If you can't collect what is due to you, more money for the system.

I wish that I could tell most of you the truth about the existing system, but you are so afraid right now that you won't listen, so what would be the point?
 
 
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May 8, 2009
‘Hypothetical inefficiency’ - ? The USA spends more and receives lesser healthcare than any other system. The inefficiency is transcendental, healthcare management (as separate from healthcare) is virtually its own industry in itself.

Let’s play a game. The world drives cars with round wheels. They work; they are efficient to a greater or lesser degree, there are some variations, but they are recognisably similar.
Via a corrupt president in the 60s and morality-free lobbyists, square wheel makers make sure the USA drives square wheeled cars. They don’t work. However, this is not a serious problem, as partisan paid off politicians (cool, alliteration) loudly crow about how wonderful these square wheeled cars are, despite the fact that nobody anywhere outside the USA has ever bought one, and rest of humanity can clearly see that they are laughable.

Square wheel manufacturers pay lobbyists to maintain the status quo at all costs. Politicians press all the usual buttons to manipulate the American public (jingoism, paranoia, ignorance, xenophobia) so that people in the USA will never question how ridiculous the square wheeled cars actually are. Anyone who does is labelled a socialist / un-American / liberal / commie / hippy / traitor who should move to Canada/France. Luckily (for the wheel makers but not the public who is forced to pay for them) the media has long since sold out so this manipulation is, frankly, rather easy.
 
 
May 8, 2009
I'm ready to accept a certain level of hypothetical inefficiency for universal healthcare.
 
 
May 8, 2009
A lot of folks are disputing the hypothetical governments goals by stipulating that:

"For each individual bureaucrat in the government, the primary incentive is to increase the size of their program and the number of people working for them so that they have to be promoted."

Or similar,

Perhaps one of those folks would care to explain exactly how that differs from the typical corporate middle-managers goals?

The difference really is only in terms of the overriding organisations goals, and how much individuals within the organisation can subvert that.


Oh, and to the folks commenting that left-wing policies are anti-freedom, perhaps you should look at some of the right wing policies limiting your freedoms... Like law-enforcement policies, and invading other countries...
 
 
May 7, 2009
This is an easy one, Scott.
("The government's incentive is to provide the service as cheaply as it can. ")
Wrongo! The government's primary incentive is to increase its own headcount and build fiefdoms. Patient care is way down the list. Can you say DMV?
By the way, good luck with the house! May the building inspectors be friendly!
 
 
May 7, 2009
As a person who works in healthcare, I absolutely have to agree with Grant in Virginia. Just today in our staff meeting we were told which treatments we were allowed to provide to patients and which ones we weren't based upon which codes receive more reimbursement from insurance and Medicare.

Insurance exists to make money. Therefore, people are denied services.

Hospitals and rehab centers exist to make money off of insurance and Medicare for CEOs and stockholders. They are not there to provide the best treatment. Providers have to attempt to give patients appropriate treatment simultaneously not get fired for not bringing in the company enough money. Therefore, patients don't always get the treatment they need and often receive treatment they DON'T need to bring in revenue.

Also, in the US, once a person has an illness, they can be denied future insurance. If a person has "good" insurance, they can still end up bankrupt from the co-pays and deductibles if they end up with a serious illness.

From what I understand about nationalized systems, the reason why people wait so long to be seen is because everybody has the opportunity to receive healthcare, but the government does not provide enough incentive for people to become physicians. Therefore, there aren't enough providers.

I hope that we can fix our healthcare problems by seeing what is not working currently, what isn't working in other countries and provide a novel, workable solution.

 
 
+2 Rank Up Rank Down
May 7, 2009
While watching the West Wing several years ago with some friends. On the show they blurted out some statistic of some government agency being the most efficient option available. Our BS detectors immediately went off and several of us dove for laptops. As it turns out, the statistic wasn't BS afterall; we found more than one study showing that the government was actually more efficient than private industry in this case. I just wish I could remember what it was...
 
 
May 7, 2009
Scott, I disagree with your theory of "natural confusopolies". In a capitalist system, the way prices are presented to the customer can be regulated. Case in point is APR, which credit card companies must present to customers to compare interest rates. The same sort of system could be done in the medical world, without resorting to large government expansion of the system. For example, laws could be passed to make it illegal for the hospital to bill you, and then have the anesthesiologist send you a separate bill. Getting laws such as those passed is another chore altogether...
 
 
May 7, 2009
Hmm. It seems 95 percent of your commenters are staunch liberals. I suppose that is a reasonable excuse for your lack of understanding of both arguements.

Mr Adams i think your a genius, but your understanding of politics, media, and economics seems highschool level at best. There is not a government sponsored health care system anywhere that lives up to its expectations, with the exception of Cuba who with remarkable foresight realized it would never obtain imaging equipment before hand.

Government run healthcare is indeed a dream come true, unfortanttly it never works except for Sweden, which is trawling in more debt per capita than the US. You want healthcare, work for a large company.

I have Hemophilia type A Severe. an average medication runs at 1000$ and i recieve it 3 times a week. I deal with health care personally more than anyone here it seems. I was forced to work for a good company with great benefits. Sure the pay isn't close to my own business, but i accept this as an unpleasant reality facing me. Also its always good to reflect. 20 years ago my life expectancy would have been halved.
 
 
May 7, 2009
Yes, I agree with your confusopoly theory, but, on other side, I remember times before mobil phone era (hmmm, 10 years ago), when we had only one monopoly state managed telecom company in my country. You had to wait several months only to be connected and paid for it not small amount of money, and calling itself was anything, but not cheap.
And now - in mobile era - we have several providers to chose from, and despite their confusopoly, the rates for calling are much much much lower.
 
 
+1 Rank Up Rank Down
May 7, 2009
charlesfunnish - get back to me once you've tried "free market" economics on national defense.

The point isn't that anything involving a private good must be 100% government-run. In some cases, the best solution is a private system with lots of government regulation, or some kind of public-private partnership. But the people who enter the debate with the premise that the private sector can deliver any good more efficiently than the government are misunderstanding the fundamental economics behind the issue.
 
 
+2 Rank Up Rank Down
May 7, 2009
Scott, I regularly think this, but only post it once in a while: you are a genius! Confusopolies: brilliant.
 
 
+1 Rank Up Rank Down
May 7, 2009
Scott, I'm surprised you're even asking this question, given your understanding of economics.

The government will nearly ALWAYS do a better job delivering a good when it's a public good, defined as something that is

1) non-rivaled: consumption by one individual does not reduce availability for others, and
2) non-excludable: no one can be excluded from benefiting from the good.

Public goods are things that everyone benefits from but no one is willing to pay the full value for because they won't be able to privately keep all of the benefits that result. It's why we don't have a privately-run military or private police forces and fire fighters. Not all public goods will fit both criteria perfectly. In the case of health care, there are many ways by which one person's consumption of quality health care reduces its availability to other people. However, the public good in question is really public health. We all benefit from having fewer people with highly contagious diseases, and we benefit further from living in societies where few people are removed from the labor force because of debilitating illnesses. But as individuals, we're not willing to pay for public health, because we'd be subsidizing benefits for anybody who chose not to pay. That's where government has a role to play -- by essentially forcing everybody to pay for public health in order to improve the welfare for society as a whole.

Why is someone who argues for national health care labeled a socialist while someone who argues for a national military is not? Why do so many supposed free-market advocates fail to understand Econ 101?
 
 
May 7, 2009
First of all, we need health CARE not health INSURANCE. Health insurance companies are a leach on society. They only exist to make money, which they do by denying coverage as much as possible.

Secondly, it's completely insane that most health-related companies (specifically, hospitals and insurers) are for-profit companies. Their goal is to make money, not provide what's best for the patient.

It's not about efficiency, it's about what's best for the people. With a health care system run by for-profit companies (like it is now in the US), their goal is to make money. If you had a system run by the government, the goal would be more focused on providing proper care. Obviously, there are going to be inefficiencies with the government model (there's plenty of Medicare fraud now, for example), but at least you are not funding a profit margin for stockholders.

Other socialized systems, such as social security, have extremely low overhead (on the order of 1-2%), so it's definitely possible to do it without incurring tremendous inefficiencies.

As for the profit motive keeping US health care on top, there is still lots of money to be made in selling equipment and medication in a socialized system. All drug companies still sell medication in Canada even though there is a cap placed on the amount they are allowed to charge (which is why Americans are crossing the border to buy drugs there). Just because drug companies might make slightly less profit doesn't mean they are going to close up shop. That's a ludicrous argument espoused by conservatives.
 
 
May 7, 2009
I think a mistaken assumption in your argument is that companies like those you mention become confuseopolies 100% on purpose. I don't think that's right. I think any large beauracracy naturally tends to become a confusopoly; companies like mobile phone providers simply see the advantages and amplify the effect.

Which is to say: a government program large enough to handle insurance claims for 300 million people would become the confusopoly to end all confusopolies.
 
 
 
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