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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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+2 Rank Up Rank Down
May 7, 2009
Once again, this ignorant debate rages on....

First of all, "Government has an incentive to provide a service at the lowest cost possible." Ahem, since when? The government acts best when cost isn't an issue, because the government is terrible at controlling it. Look at any government program, the workers are paid far more than the free market would be willing to pay them for the same labor (especially when you include pension funds and healthcare benefits). The Government never does a good job of ending programs that won't accomplish anything of value, sometimes even when people know that's the case. The private sector has much more of an incentive to cut costs. But maybe you were speaking of "the customer's perspective" when you were speaking of cost, but that's if you assume that the rich would foot the bill for the poor. Putting the government in charge of healthcare would not make it "cheaper" in the grand sense.

Health care costs are lower in countries (including the taxes) with nationalized health care for a couple of reasons.

1. Rationed services- These are the waiting lists that right wingers fear so much. This isn't really that much of a free market vs. govt issue, and to me it doesn't seem that unreasonable to ration certain services. Should an 80 yr old get his heart surgery before a 14 year old that needs the same operation. I say no.

2. Less surgery- Less surgery and more treatment from primary care physicians means less expensive healthcare and less malpractice (one of the major killers of US healthcare)

3. Simplified distribution- There isn't much paper work when everyone's covered. The US suffers from huge administrative costs

That being said, I don't see this as a market vs. government issue. It's more of a managed vs. free for all issue. Same thing as we see with fisheries and the timber industry. Also, some of the best nationalized healthcare systems are the most free market ones. Japan has an aged population and should have the highest healthcare costs, but the actual costs are quite low compared to other countries with nationalized healthcare. Hospitals are independent of the government in Japan, and Doctors are far from being government employees. Pharmacies and minor emergency clinics litter the landscape and they are all privately run. To me, if this were more of a government vs. free market debate, we would be discussing the merits of a completely government run system in which hospitals would be managed completely by the government and requisition supplies that they need. Most national healthcare systems DONT operate that way, especially some of the best. Why do people dramatically oversimplify this debate to capitalism vs socialism? ITS MORE COMPLICATED THAN THAT!!!!
 
 
May 7, 2009
I don't trust government to do anything anymore because there are too many stupid, inefficient and stubborn people entrenched in their jobs who live by the creed "But we've always done it that way!", and it's nearly impossible to remove them. Government doesn't work like the free market - we can't just fire people when they're incompetent.

I work for my local county government as a software developer. We were given a really simple task - to automate a paper process that was slow and time consuming. The rules to this process were overly complex and esoteric and many of the them resulted in illegal accounting practices.

We, the software development team, wanted to fix that - in the process of writing the software we wanted to also simplify the process, streamline it, take out the esoteric rules and comply with federal regulations.

So we built the software (which works) to comply with these goals. Unfortunately, there was so much bureaucracy involved and so many people who wanted to maintain their fiefdoms that it was an uphill battle all the way (we're still fighting)

We're still bickering among departments and elected officials about some of the stupidest crap I've ever seen! I mean, what we're trying to do is so simple: make a complex process simple and efficient. And yet we have people in our county who are ACTIVELY WORKING AGAINST US! We have people who actually want to maintain some of these esoteric practices just because that's what they're used to and that's what they've always done. We have people who are actually afraid to use computers...

So Scott - I don't trust the government to get anything right. I'm in it at a local level and it's an absolute mess. We can't even get something simple done, and you want the big government to handle something as critical as health care? I don't trust stupid people anymore.

At least in the private sector a company can fire it's stupid people.

 
 
May 7, 2009
I don't trust government to do anything anymore because there are too many stupid, inefficient and stubborn people entrenched in their jobs who live by the creed "But we've always done it that way!", and it's nearly impossible to remove them. Government doesn't work like the free market - we can't just fire people when they're incompetent.

I work for my local county government as a software developer. We were given a really simple task - to automate a paper process that was slow and time consuming. The rules to this process were overly complex and esoteric and many of the them resulted in illegal accounting practices.

We, the software development team, wanted to fix that - in the process of writing the software we wanted to also simplify the process, streamline it, take out the esoteric rules and comply with federal regulations.

So we built the software (which works) to comply with these goals. Unfortunately, there was so much bureaucracy involved and so many people who wanted to maintain their fiefdoms that it was an uphill battle all the way (we're still fighting)

We're still bickering among departments and elected officials about some of the stupidest crap I've ever seen! I mean, what we're trying to do is so simple: make a complex process simple and efficient. And yet we have people in our county who are ACTIVELY WORKING AGAINST US! We have people who actually want to maintain some of these esoteric practices just because that's what they're used to and that's what they've always done. We have people who are actually afraid to use computers...

So Scott - I don't trust the government to get anything right. I'm in it at a local level and it's an absolute mess. We can't even get something simple done, and you want the big government to handle something as critical as health care? I don't trust stupid people anymore.

At least in the private sector a company can fire it's stupid people.

 
 
May 7, 2009
Scott, the logic here should keep you in comic ideas until you're eligible for medicare. e.g. if a doctor "cures" you they lose money. Why? Because you never come back? Because no patient wants to tell their friends about a good doctor? Conversely, the government would let you die to reduce costs? The only good taxpayer is a dead taxpayer?
 
 
May 7, 2009
Scott,
I sometimes wish that there was an Ignoble Prize in Economics that we could confer on you. Government incentives & goals are much complex than you posit. Please reference Public Choice economics.

"Confusopolies" only work where there are restrictions on entry to the business, especially when backed by government regulations . Cell phone bandwidth is allocated by the government. And innovation in that business is also limited, because they have been bestowed with the "public" airwaves, that must be "protected".
 
 
+3 Rank Up Rank Down
May 7, 2009
The United States certainly does have universal health care.
We took in a old friend who was down on her luck and temporarily homeless.
She needed eye surgery. A university hospital near us did several operations over a period of several months at no cost, and the treatment she got was first class.

How is this paid for? I found out last month. I spent one dayin the ICU of the same hospital for a very minor stroke. The bill was an astounding amount, but all I had to pay was my 20 percent after my health insurance paid their 80. Still I had to work out a payment plan for the 20 percent, it's a lot of money, but somebody has to cover all the people who walk in off the street with no insurance.

And it's certainly less money than the government would take in taxes over my lifetime if they ran the health care system.
 
 
-1 Rank Up Rank Down
May 7, 2009
The United States certainly does have universal health care.
We took in a old friend who was down on her luck and temporarily homeless.
She needed eye surgery. A university hospital near us did several operations over a period of several months at no cost, and the treatment she got was first class.

How is this paid for? I found out last month. I spent one dayin the ICU of the same hospital for a very minor stroke. The bill was an astounding amount, but all I had to pay was my 20 percent after my health insurance paid their 80. Still I had to work out a payment plan for the 20 percent, it's a lot of money, but somebody has to cover all the people who walk in off the street with no insurance.

And it's certainly less money than the government would take in taxes over my lifetime if they ran the health care system.
 
 
May 7, 2009
For those who say the Canadian system is better: As a Canadian I agree, but the only reason our system works is because we have a country just next door with the best for-profit health-case system in the world. The profit motive in the U.S. keeps health-care improving. And everyone else in the world benefits from it.

And, if the waiting list for health-care in a Canadian hospital is too long, I can get on a plane and be at the best hospital in the U.S. within hours (as long as I can pay for it).

If the U.S. adopted a health-case system like Canada or Europe, we'd be screwed.
 
 
May 7, 2009
If you think cell phone contracts are a confusopoly they've got nothing on a health insurance contract. If you really want to compare products you have to know what disease you are going to get in advance and what type of treatement you would like to pursue so you could evaluate the network of available providers and make some guesstimates about the out of pocket costs. And that's only if you are buying your own policy. If you get it through work you get what your company picks. They have every incentive to find a cheap policy that looks good on the service but covers next to nothing. After all most of the employees won't have a heart attack or get cancer so they'll never find the policy is no damn good.

The current health care system is free market only if you consider it a free market when one side has hundreds of millions to spend on analysts, lawyers and lobbiests and the other side doesn't even know the questions to ask until they or someone in their family gets seriously ill. At they point it's too late and besides they are too busy with round the clock vigils to make sure they don't get mis-medicated, spending all their waking hours calling for pre-authorizations, and finding out who's in network and who's not.
 
 
May 7, 2009
Don't we want innovation in health care? How else are we going to get the new technologies that let us live forever?
 
 
May 7, 2009
As an example of an hybrid system, in Spain some pro-free market regions have "outsourced" healthcare to private companys. You pay the taxes, the government collects them, it gives the money to private companies, and the private companies organize health services as they like. Obviously there is a lot of regulation to make sure that the company provides good services.

Personally I don't like it. Despite of all the regulation, the companies will try to reduce investment to maximize profits, and they will try quite hard, because they can't maximize profits in any other way (ex: providing extra services). For example, I've been told that in those hospitals there is a highter number of cesareans to get a more efficient usage of the resources.
 
 
May 7, 2009
As a Canadian, and someone who's lived in both Canada and the U.S., I'll take our system over the for-profit model any day. Governments can provide essential services -- roads, policing, health care -- at lower cost to the public than the private sector by simple virtue of the fact that they can provide those services at cost. There's no profit margin to be factored in to the final cost to the user (or taxpayer, as the case may be). That 30% or so of what the end user pays that goes straight to the shareholders rather than to providing services is an incredible inefficiency that is consistently overlooked by those who support the free market.

The biggest problem with Canada's health care system is not the amount spent on it (which still pales in comparison to that spent on various HMOs and private insurance in the U.S.) but rather the amount _not_ spent. Successive governments have reduced spending on health care as a fraction of GDP, increasing wait times in the process. That's the reason why people choose to go south of the border to jump the queue -- if they remain within the public system, their case will be decided solely on need rather than the ability to pay. Greater investment, first to make up the shortcomings of the last decade or so and then to meet coming needs, would reduce wait times while still providing health care at a fraction of the cost of a private system. It's not exactly rocket science.
 
 
May 7, 2009
The best innovations in medicine have come through government funding, be it from the military (great for emergency medicine) or through NIH. I would say one non-government funded innovation has been the private company, Celera, who finished first the sequencing of the human genome. They came up with the much faster method, the shotgun method, than that used by the government-funded Human Genome Project. On the bad side of that, though, they didn't want to make their findings public because of course their first priority is their shareholders and making money rather than the public's well-being. That ceases to be the case only when a private company can't hide or spin their actions enough to fool or confuse the general public sufficiently to prevent a PR backlash.
 
 
May 7, 2009
That joke about "I'm from the government and I'm here to help" became a lot less funny after hurricane Katrina.
 
 
May 7, 2009
1. Is it more about software than headcount?

I don't know what you mean by software. If you mean the 'program' that the entity providing the healthcare runs on, whether it be state-owned or not, then this program is determined by the managers and requires management skill. What reason do you have to believe that there would be more management skill in the state sector?

2. How important is innovation?

In a free market for healthcare there would be all kinds of medical services providers. There is innovation in the sense of there being many ways of running them, and there are new medical methods being invented. Health insurance comes into this because providers have to decide what providers will be used for the insurance.

3. Is the free market for this service a natural confusopoly?

Probably, but it's better than the alternative.

'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.'

The regulation body was warned about Madoff's scheme years ago, but didn't do anything. Private regulation agencies could have done a better job in warning investors. The state is largely to blame for the problems with sub-prime mortgages too. Fannie Mae and Freddie Mac were somewhat controlled by the state, and we mustn't forget the role of the Federal Reserve and the consequences of it artificially lowering interest rates.
 
 
+1 Rank Up Rank Down
May 7, 2009
I am sympathetic to this argument, but the incentive of the government is not to provide the service as cheaply as possible. The government almost never arrives at a cheap, effective, solution to a problem (for examples see defense contractors). The incentive of government managers is to increase their influence, the size of their personal empires, etc.
 
 
+1 Rank Up Rank Down
May 7, 2009
"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."

Yeah, because the government had NOTHING to do with any of that. Right?
 
 
-1 Rank Up Rank Down
May 7, 2009
I had this discussion with a friend the other day. I questioned his assumption about Obama running banks and auto manufacturers being a bad thing. We got to the topic of nationalized health care. I am of the opinion that innovation gets trumped by access. I feal that basic services that save simple problems is beter for our species than selective solutions that are only applicable to the 1% that need them. In the spirit of Star Trek, 'The good of the many, is greater than the good of the few, or the one.'

 
 
+1 Rank Up Rank Down
May 7, 2009
Comment 1: How important is innovation? In saving lives? Are you kidding me?

Comment 2: Can you name a country that does nationalized healthcare "right"? (Before you say Canada, look at the lines of people crossing the border to get healthcare in the US, because of long wait times in Canada. Before you say the UK, note that they've even gone over to a two-tier system, wherein you can buy private insurance, if you actually want a higher quality of service.....)

Comment 3: In every case, "universal" healthcare means "rationed" healthcare. Is that what you want?

 
 
May 7, 2009
"And one can make a strong argument that "mortgages to hobos" was a direct result of government policies and mandates."

While that was a factor, I think most people who aren’t trying to make a political statement realize that government policies were a pretty small part of the picture. I mean, the industry didn't need much pushing to suddenly start making WAY more money. And the pressure to inflate the bond ratings of different mortgage packages didn't come from the government...We have two factors here: government policy (like the government has ever been able to make the private sector do what it didn’t want to do) & greed. Historically, which is these is usually the culprit?


Davin - while I sympathize, there has to be a bit of middle ground. Right now, some people are almost literally slaves to their jobs because they need the health insurance (got a kid with a serious chronic health condition? Well, forget about career advancement! Unless you're extremely marketable, you'll likely never be able to leave your job, because you can't go even one minute without insurance!). It makes zero sense that health insurance, for all intents and purposes, can only be had at reasonable prices through employers. It basically forces people to take full-time “career”- type jobs, and that sounds more like socialism/communism to me than a bit of government intervention.

Point is, it’s an unfair system. My mother-in-law is a real-estate agent in her 60's in good health, and like most real-estate agents, she has to provide her own insurance. She currently pays over $800 a month. They basically raise the price whenever they want, as much as they want. Does that sound reasonable to anyone? This is why I really like the idea of portable insurance. It seems like the fairest and most reasonable idea that actually has a shot at being implemented in the near future.
 
 
 
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