(Cartoon by Mikhaela Reid.)
In comments, I wrote, “if the House bill becomes law, no one will be forced to be on the public option — everyone’s free to choose a private plan, if they don’t like the public plan.”
Robert Hayes replied “not for long,” pointing to this post on his own blog. Here’s the heart of Bob’s argument:
If the public option is in place, employers all over the country will jump at the chance to move their employees out of costly benefit plans and into the public system. […] Unless the plan is punitive towards employers who do that – and it won’t be, because that would be politically suicidal for Democrats – there will be an inevitable tidal wade into the public system, not by choice, but by expulsion.
Bob’s wrong; in fact, the proposed health insurance plan provides three layers of protection, to keep people from being unwillingly forced onto the public option.
First, contrary to what Bob says, the plan is punitive towards large employers who don’t provide health insurance for their employees. ((Small employers get assistance to help them insure employees more cheaply than they’d otherwise be able to. Or they can pay part of the cost of having their employees join the public plan — but they pay less than large employers would.)) From a New York Times report on how the proposed Health Insurance Exchange would work:
In general, there’s no strong incentive to drop coverage, because businesses are required to contribute to the cost of coverage or pay a penalty. The play-or-pay requirement is designed to create a relatively balanced choice between providing coverage directly or going into the exchange. The experience in Massachusetts and San Francisco, the only two places in the country that currently have a play-or-pay arrangement, is that firms largely keep doing what they were doing. If they’ve been providing coverage, they keep providing coverage. If not, they pay a penalty.
So that’s the first level of protection against being involuntarily forced onto the public option.
So what if a large employer does choose to dump employee health care — something that could happen under the status quo, as well as under the proposed changes, and is likely to be rare in either case? Wouldn’t that mean that those employees would be forced to take the public option?
No, it wouldn’t. Here’s where the second level of protection comes into play — people could simply buy insurance on the private market, contracting directly with the insurance companies.
But what if they can’t find a deal that’s worth taking on the private market? It generally sucks buying insurance as an individual, rather than as part of some big group plan. Wouldn’t people then be forced to buy into the public option?
No, they woudln’t, because that’s where the health insurance exchange — the third level of protection — comes into play.
Because the health insurance exchange, which uses the same model for health insurance used by members of Congress, would give people the choice between several competing health insurance plans. (That’s what a health insurance exchange is.) And only one of those plans would be the public option.
The difference is, under the status quo, someone in that situation might find that no insurance company is willing to cover them, because of age or a pre-existing condition. Under the proposed health insurance reform, everyone can get health insurance. And that health insurance will contain consumer protections that the status quo lacks — so insurance can’t drop people because they become sick, or cut them off from assistance.
To make up for the extra costs of forcing insurance companies to cover anyone, everyone — including the young and the healthy — will be required to get health insurance. Of course, paying for health insurance wouldn’t be cheap — but it’s not cheap under the status quo, either. At least under the proposed health insurance reform, people who make up to 3 or 4 times the poverty line can get assistance in paying for their health insurance.
I love how there are other countries with competing public and private plans, but OH NO THIS IS IMPOSSIBLE.
Mandolin,
Bob already convincingly refuted your point by saying, “Leftists will tiredly (and tiringly) argue that ‘oh look, it worked in THIS Swiss canton for the eight years the study conveniently ran’ – ignoring the uniquely American spin that often makes those studies of dubious applicability, at best.”
Admittedly, I don’t know what study he’s talking about or what is the “uniquely American spin” he has in mind, but you have been refuted because your argument is tiring.
For your first layer of protection, I’m going to need something a little more objective and economics-oriented than the kneepad-wearing NY Times. Even the Times admits that the penalties which have been proposed – which are the maximum that will be proposed in any realistic sense, and which will be watered down and reduced by corporate lobbyists by the time any bill actually becomes law – only keep the incentive to dump coverage from being strong. Luckily, in America companies need strong incentives to decide to screw their workers, right?
Your second layer of protection is incoherent. If buying private insurance as an individual is a workable strategy, then where’s the justification for the public option? The whole point of your argument for reform is that the private insurance system is so awful and broken that it’s worthless. You’re saying that my front yard is a minefield and so kids need to be redirected to the backyard to play, I’m saying “but there are problems a, b, and c with the backyard”, and you’re saying “no worries, you’ve always got the frontyard as a backup plan!” Make up your mind.
Your third layer of protection begs the question. I’m suggesting that these insurance companies are going to go away; you can have all the exchange mechanisms you want, if people can’t make money providing the service they won’t provide the service and the “Exchange” will have the public option and only the public option. Which is exactly what I’m predicting, and exactly what tens of millions of Americans are afraid of.
I love the mechanism of paying for all this, too. There are millions of people who don’t want this product (and millions who do); let’s make the difficult situation(s) of the people who do want the product easier, by forcing the people who don’t want it to buy in!
Hit that donkey harder! He’s got to get to work!
Mandolin – Yes, there are countries with public and private options. They aren’t the US; they have different challenges, different demographics, and different economic realities in the population and the choices being made. OK, Switzerland has made it work; Switzerland has also made it work that everybody has an assault rifle in their closet and yet there is no gun violence.
Are you going to look me [virtually] square in the eye and tell me that, were I to propose mandatory gun ownership in all American homes, that you’d accept “it works in Switzerland” as a counterargument to your concerns over the plan?
Robert,
(a) You’re the one obsessed with Switzerland, not Mandolin. She’s indicated that *several* countries have had a mix of public and private.
(b) Why do you think there is mandatory gun ownership in all Swiss homes? My understanding is that Switzerland has mandatory military service for all men, and that upon leaving the service, men are allowed to retain their issued weapons, thus leading to most homes with adult men also containing firearms. (A higher percentage of U.S. homes also had firearms during the periods after we had mandatory military service, e.g. post Civil War and post WWII, because being required to train in and use a gun, and then having the option to take it home, will obviously lead to lots of people having guns.) What’s this Swiss mandate to own guns?
And there is gun violence in Switzerland. In 2001, in a government building, Friedrich Leibacher used an assault rifle to kill 14 people before killing himself. People use guns to commit homicides and suicides. The government no longer automatically hands out ammo for personal use as a parting gift at the end of military service. Buying a gun from another person, as well as from a store, now requires an ownership permit, which permit can be obtained only by someone with a clean criminal record. Crime in Switzerland is disproportionately committed by non-citizens (in 2003, only half of criminal convictions in Switzerland were of Swiss citizens), but only citizens serve in the military and have widespread gun ownership. The crime and incarceration rates in Switzerland are about 10 times lower than in the U.S.
What is uniquely American about health care that the experiences of other countries are not instructive?
Replace Switzerland with whatever countries you wish. We’re not Germany or France, either.
I always thought the Swiss rule was that every man was in the reserves automatically and so was required to keep their gun after military service so they’d be ready to report to duty in later years. And, fine, LITTLE gun violence.
Robert,
Replace Switzerland with whatever countries you wish. We’re not Germany or France, either.
Well, yeah. Nobody and nothing is ever somebody or something else. What a useless truism.
So can we now forbid Robert from ever extrapolating from one thing to another?
Apparently you can forbid me from talking about donkey hammering, so why not?
Well said, simply put. Now if only people with a national forum could do so well!
I sometimes would swear that the progressives with the biggest microphones are taking a dive, to use a boxing world term. You, me, and 1/2 the people we know could have done a far better job at selling this thing. I mean if Sarah freakin’ PALIN made headway in the public discourse over some of the “brightest” minds the Democrats have, then maybe we owe Ralph Nader a second look.
Or maybe the old saying is true. “You can’t outsmart everyone, but sometimes you can out-dumb enough of everyone.”
Yeah? Well the free market is a tough place and weaklings eat hot, firey hot economic death.
Look, if Blue Cross can’t compete with a public option because people choose the public option over BC, I’m not going to cry for them.
After 10 years of dealing with private insurance companies for a family member’s chronic condition, I would kill to be able to get onto Medicare. Why? Because at least then I’ll know what is covered for the rest of my life & I’ll know that we won’t have to switch doctors every year or two when my employer changes insurance carriers. And that’s aside from the fact that nearly everyone on Medicare is happier with it than with the private insurance they had before being eligible.
And this is coming from somebody who had the best insurance imaginable in the US for 3 1/2 years. Even while I had that I was wishing for a public option because I knew we’d have to change insurance sometime in the near future which would cause hardship, stress and, possibly, less effective treatment.
One of our employees’ son is no longer eligible to be on his plan because he’s too old to be a dependent. So he applies for an individual policy. He’s 23. The only condition he marked on the form is “acid reflux.” He was denied coverage. Since he was denied coverage, it is unlikely that any private insurance company in this state will accept him for the next five years (standard question on applications: “Have you been denied coverage by a carrier in the last 5 years?” If you answer affirmatively, they will not cover you). This is the system you’d prefer to keep?
The fact of the matter is that the health insurance industry as it stands in the US is terrible. It’s incredibly more expensive than the alternatives, it provides worse outcomes than the alternatives & is a huge drain on the economy and on productivity.
The fact of the matter is that the health insurance industry as it stands in the US is terrible. It’s incredibly more expensive than the alternatives, it provides worse outcomes than the alternatives & is a huge drain on the economy and on productivity.
But it doesn’t involve government intervention. So it’s still better than the Sheer Evil that would represent.
Actually, the system as we have it now involves a great deal of government intervention – intervention that itself has caused many of the existing problems.
That would be true if I wasn’t pro-Evil.
After a disheartening discussion with my libertarian co-workers about welfare cheats who live next door & how the government has never done anything efficiently (with the USPS & DMV as the examples given), I’ve had a realization about libertarianism. The libertarianism that I hear & see talked up most often around me is about not having to help others because those others might just be loafing and just need to work harder or, just as commonly, they don’t have what it takes and, oh, well… Taken to its logical end, it creates a world in which nobody ever even talks to those outside of their immediate family. It creates a world that destroys human society as we understand it and replaces it with a nanotribal system where conflicts over resources between those nanotribes are resolved by violence.
It’s an ugly, ugly philosophy of Personal Responsibility and belief in self-exceptionalism perpetuated mostly by the ignorant mostly at the behest of the astonishingly selfish.
Yes yes yes yes yes.
This could not be more right.
IF the private sector always does things better than the public sector, then conservatives have nothing to fear. The public option will wither on the vine.
IF, on the other hand, that’s rhetorical bullshit that all but the most dim-witted conservatives don’t actually believe, then they have plenty to fear, realizing that the public option might do more more effectively and less cruelly then private insurance.
Conservatives are flipping out over this.
One guess which of the two options applies.
—Myca
Robert, it’s not my job to orient you with the most basic facts about the proposed legislation — facts that you were obviously completely ignorant of when you wrote your post. You claimed that there was no punative penalty for employers who don’t contribute, and that the Dems wouldn’t do it because it would be “political suicide.”
You were wrong; completely, utterly wrong. That’s not a matter of subjective opinion; it’s the difference between knowing what the legislation says (me), and being totally ignorant of what the legislation says (your blog post). It’s not just the New York Times that says so; it’s the legislation itself, and what any source at all that’s not right-wing partisan hackary would tell you the legislation says.
I’m not willing to argue basic facts.
If you’re willing to admit that the facts as you outlined them in your post were untrue, and you now want to switch into arguing if the incentives given in the legislation are strong enough, I can do that. But I need you to make the admission first, because if you can’t admit to even the basic, obvious facts of what the legislation says, then it’s not possible to have a reasonable discussion.
It’s a workable strategy for some individuals, but not most individuals. Therefore, it’s beneficial to have this available as a choice for those who want it, but have alternatives for those who don’t.
Since the insurance companies are favoring the health care insurance reform, I trust that the plan won’t drive them out of business. In this instance, I think their analysis is probably better-informed than yours.
For the millionth time: could people please *read* HR 3200 before telling the rest of us what it does and doesn’t say? I direct those who swallowed Robert’s line about how there were no penalties on employers to Div. A, Title III, Subtitle B, Parts 1 & 2.
We are not buying the repeated insistence of reform opponents that anything as long as HR 3200 automatically exempts them from having a clue about what they’re criticizing.
But Amp,
Since the insurance companies are favoring the health care insurance reform, I trust that the plan won’t drive them out of business. In this instance, I think their analysis is probably better-informed than yours.
They don’t favor the piece that includes a public option.
Yeah, PG is right. The insurance companies favor the insurance mandate because, Hey! Golly! 40 million new customers! They oppose the public option because, Hey! Geeze Louise! competition that isn’t looking to suck as much money out of the process as possible is bad.
I’m telling you, as soon as I can get into a Medicare (or better) type of public plan I’m there. My insurance really is much better than what most of the insured have in this country & I’d be a fool not to switch to a public option.
Yes, the insurance companies are negotiating to try and prevent the public option — but it’s clear that they’re willing to live with it, if it passes. Unlike under Clinton, they’re not scuttling reform altogether. Their commercials on TV this time are pro-reform (and not focusing one way or the other on the public option).
I don’t see any indication at all that the insurance industry isn’t prepared to live with (and survive) the public option, if it passes. If they really thought that the public option would wipe them out, they’d be working much, much harder against reform, rather than working mildly for it.
Their commercials on TV this time are pro-reform (and not focusing one way or the other on the public option).
I don’t think I’ve seen commercials from the insurance industry. You might be confusing commercials from PhRMA (drug lobby running the new Harry & Louise ads) or the AARP (cars blocking ambulance ad).
I, too, have seen the insurance industry commercials. They’re totally pro-reform. Amusingly so – like there’s nothing in it for them.
They really, really don’t want a public option, but they aren’t willing to be loud and out front in the media with their opposition. The health insurance industry has been preparing for this for at least 6 years, so they aren’t being surprised. They know that public sentiment is not on their side and that loud opposition to a public plan would be counter-productive. They just feel they have a better chance of killing the public option by working behind the scenes.
Or so my experience leads me to believe.
You might be right — I’m not sure.
Nonetheless, I’ve seen nothing at all from the insurance industry to indicate that they forsee being wiped out if the public option passes. For the very good reason that most of the Democrats in congress — and certainly Obama — are simply not that radical. The entire strategy for passing health insurance reform is to avoid doing anything so radical that the insurance industry (and other industries) feel a do-or-die motivation to kill it at all costs.
They didn’t intend to kill the railroads, either. But they damn near did.
Do you have sources for that, Robert? I had always thought that they did intend to kill the railroads.
Robert’s two sentence comments are always a delightful mystery.
Is he talking about Amtrak? (created in 1970 after passenger rail had pretty much collapsed)
Is he talking about the effect not of a government competitor, but of excessive government regulation (the ICC really was a terrible agency; it forced the rail companies to maintain service to tiny, bump-on-the-map towns, over-regulated fares and impeded mergers that would have saved failing companies, although there was also the private sector problem of the Great American Streetcar Scandal in which city rail systems were deliberately dismantled and replaced with buses, thanks to Firestone, Standard Oil, Phillips, Mack [trucks] and General Motors.)
Is he not even talking about passenger rail, but instead about freight rail, which has never had a government version and continues to move about 40% of American goods? (As I think the NPR sponsors like to tell us.)
Is he objecting to the establishment of the interstate highway system, which popularized cars and buses for passenger travel, and trucking for freight?
Oh, hell, I’ve got a spare minute before my deadline utterly crushes me flat, so what harm could come from offering my 2 cents about health care reform? After all, how long could this discussion take?
Generally I favor regulating health insurers like competitive telephone companies: Bar undue discrimination (that is, discrimination on the basis of things we find reprehensible, even if it does correlate with cost). Require minimum standards of quality. And establish regulatory mechanisms to collect data demonstrating that these rules are being enforced, and to impose sanctions when they aren’t. Alas, thanks to court interpretations of ERISA (federal pension fund) laws, states are preempted from regulating many aspects of employer-based health insurance. So we gotta rely on the fed to pass reforms — or at least replace a few more judges.
But with good enough regulation, we’ve been able to get high quality, low cost reliable phone service without creating a government-run alternative phone company. I suspect the same is true of health insurance. Moreover, I share Robert’s skepticism that any tax put on employers that fail to provide health insurance to their employees would be appropriately calibrated over time to maintain something akin to the status quo.
That said, I’m just not all that hung up on the status quo. Thus, I wouldn’t be surprised if Robert were right and a public plan did reduce the prevalence of employer-based health insurance. I’m just not persuaded that this would be such a terrible outcome. Let’s discuss that next.
As Robert correctly observes, when we contrast a public plan with private plans we shouldn’t forget that private plans are also heavily influenced by regulation. Indeed, the growth and maintenance of employer-provided health insurance was very heavily influenced by government action. If we could finally put an end to that match made in hell, so much the better. I’m somewhat surprised Robert wouldn’t embrace the opportunity to use government intervention to repair the damage to market mechanisms created by government intervention.
And if private employers dumped health insurance, would that spell the end of private insurers? No.
First, there are plenty of examples of private entities competing with public ones. Obama talked about Fed Ex and the Post Office (although the Post Office is now a quasi-private corporation, right?) But the most obvious example would be elementary education. Hell, government GIVES the stuff away in pretty much unlimited quantity. Yet people still choose private options – especially if they perceive that the private option will provide higher quality.
Second, the very reason the private health insurance market stinks today is because of adverse selection – the idea that employer-based group plans tend to serve the healthiest end of the market, leaving the rest of the market filled with a disproportionate share of the sick. If employer-based insurance died, then the rest of the market would come to have the same health risk characteristics of the average person – which is to say, not worse than average. Not an unattractive population for an insurer to serve.
Third, recall that employers don’t provide insurance to their employees as an act of noblesse oblige. Health insurance is part of a compensation package offered to attract labor. If an employer stopped offering health insurance, all else being equal, the employees would quit and go work for a competitor offered a better compensation package. So employers would not simply eliminate health insurance; they’d have to INCREASE some other part of the compensation package – most likely, they offer more salary. This would mean that we’d see an ever-growing portion of the US population 1) with more cash income and 2) looking for health insurance. Does this really sound like a circumstance that would kill the private insurance market?
Fourth, consider the adverse selection dynamics again. Why do health insurers have such high admin. expenses? They’re busy screening people to exclude those who might get sick. Why? In part because they know that all their COMPETITORS are doing so. Any insurer that didn’t play this game would end up with higher expenses than its competitors, and would go out of business. All insurers are caught in this arms race. If they could mutually disarm and eliminate their screening processes, they could each end up serving a random share of the population with an average level of risk — but at a fraction of the administrative cost.
To be sure, if the government plan was heavily subsidized, that would diminish the ability of private firms to compete head-to-head on the basis of cost. Private firms might then compete by offering a premium coverage for a premium price, or otherwise distinguish their offering from the public offering. Basically, the same way private schools do.
Would this be an insurance company’s paradise? No, competitive pressures would come to bear as in any market, limiting opportunities for profit. But the point is, I see no more reason to believe private firms would abandon this market than that they’d abandon any other market.
And if it turns out that a break-even (unsubsidized) government insurance operation really could out-compete private firms due to economies of scale or whatever, well, that’s ok w/ me too. I value markets as a tool for getting high quality and low cost, not as an end in itself. If another tool gets me even higher quality and lower cost, so much the better.
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Actually capitalists generally believe the private sector can’t compete with government b/c government has virtual unlimited access to capital (taxpayer money) and can thus hold down their prices , dominate the market, ultimately putting the competition out of business. Then once you have the government monopoly the inefficiencies start to occur, for reasons I’m sure i don’t have to go into.
This proposition, once debatable, has so much data backing it up that even the world’s most prominent leftist economists–like paul kurgman and jeffrey sachs–generally accept the superiority of the free market. “nowadays we take the triumph of capitalism as something preordained by the superiority of our economic system. After all, it now seems obvious to everyone except North Korea and Cuba that a market economy is vastly more productive than one controlled from the center – and the Cuban economy is imploding, while the North Koreans are quite literally starving to death…socialism is a system that just can’t deliver the goods, while capitalism is a system that can,” Krugman informs us.
Krugman obviously isn’t ideological about this proposition, there are exceptions (as he latter points to successes within socialist systems) and he believes health care is one of them, along lines similar to kenneth arrow’s seminal paper on the issue.
i’m open to the krugman/arrow thesis but given the overwhelming superiority of the free market, i think your comment is too glib, especially when it comes to the question of drug development, which the US dominates and the rest of the world dependent upon.
The proposed pubic option law calls for the public option to pay for itself, after the start-up costs.
I think you should distinguish between “market” and “free market.” I favor a market-based economy, but not a “free market,” because I think regulation has an essential place in making market-based economies work.
This is absolute nonsense.
The development of new drugs has nothing to do with the free market. In the US, the government makes three massive interventions which overwhelmingly drive the development of new drugs. None of these interventions are an example of a “free market” in action.
1) The US funds Medicare, which artificially, vastly increases the market for new drugs.
2) The US grants extended patent monopolies for new drugs to corporations. “Monopoly” is the opposite of “free market.”
3) The US directly funds a huge amount of medical research through the NIH.
If you think that adds up to “free market,” then I don’t think the term means what you think it means.
Amp,
Re: (1), the U.S. didn’t have a prescription drug benefit for Medicare until about 2003. And we got that drug benefit because of the weepy stories Al Gore told about seniors who were choosing between food and medication. I suppose you could argue that the existence of Medicare that covered other medical needs allowed the elderly to use more of their own income to buy prescription drugs than they could do if they also had to use that income for doctor visits and bypass surgery — thus propping up the market artificially — but the direct transfer of money from the Treasury to Pfizer is fairly recent.
Medicaid has covered prescription drugs for years, which is why prior to the Medicare drug benefit, HMOs really salivated over “dual eligibles” (people who were elderly/disabled and thus on Medicare, but also low-income and qualified for Medicaid). Medicaid is run at the state level and the states impose a lot more limitations on it than the feds do on Medicare; for example, several states require Medicaid recipients to enroll in HMOs, whereas Medicare beneficiaries can opt to remain in fee-for-service. I am doubtful that Medicaid has done a lot for the new drug market, because many states and Medicaid HMOs have limited formularies that heavily favor generic drugs. The Medicare prescription benefit, on the other hand, has created a much larger subsidy to the drug industry because it doesn’t seem to have any limits on what drugs can be potentially covered (although it will sometimes try to be certain that the most expensive drug is absolutely necessary for a particular patient before covering it). But again, that subsidy is fairly recent.
@Myca at 15:
It’s quite possible for government regulation to wreck a private industry, particularly if there’s a public option under a different regulatory regime, or subsidized by the taxpayer. One obvious example is the effects of rent control — famously described by economist Assar Lindbeck as “the most efficient technique presently known to destroy a city—except for bombing”.
@PG at 25
I believe Robert’s comment about railroads was referring to the near-death of many of the country’s *freight* railroads in the 1970s due to destructive price regulation by the ICC — a situation that turned around almost instantly once the Staggers Act deregulated freight shipping costs.
It’s true! Cities like Manhattan and L.A. are total hellholes; there’s no life there at all anymore. Life is better in cities like Flint and Modesto, where there’s no rent control. That’s why there are so many more people who want to live in Flint than NYC.
I do think rent control has harmful side effects, but come on!
@32,
There’s a difference between the government’s competing with the private sector (as it does in package delivery, with the USPS competing with FedEx et al); and government’s imposing regulation on the private sector (as either federal, state or local government does to varying extents in every single industry I can think of).
If you already know there’s a difference, I’m not sure why you think your comment about regulation is relevant to a discussion of the effect the public option. Sure, over-regulation can strangle an industry. What does that have to do with what the government’s offering an insurance plan will do to private sector insurance plans? Heck, the part of the reform that the insurance industry is accepting is the heightened regulation (e.g. not being able to reject people for pre-existing conditions); the part they’re fighting is the one that doesn’t involve regulation, but rather setting up a government-sponsored competitor.
I’d argue further than that!
It’s true, as you say, that anything that gives seniors more income will cause them to spend more money, and it’s a sure bet that seniors will spend some of their money on drugs. So by that light, not only medicare but Social Security would make inventing and manufacturing drugs more attractive.
But Medicare is better than that, because medical care and drugs, like hot dogs and buns, are complimentary items; the more affordable one is, the more the other will sell.
(Also, Medicare has helped increase the market for non-pharma medical innovations.)
That said, I think it’s mostly the NIH. Pharma companies vastly exaggerate how important the research they do is.
Ampersand @33: Rent control is obviously not the *only* influence on how cities turn out. Nor did anybody, to the best of my knowledge, ever say “rent control makes cities uninhabitable.” But it can be enormously destructive. I can’t speak to LA, but things got pretty bad in New York. Notoriously, rent control made some buildings uneconomical to rent or maintain, and was a big cause of the abandoned property crisis in New York in the 1970s. Hellhole might be too strong, but there were a lot of neighborhoods in the Bronx and Brooklyn that were seriously hurt. Since then, a lot of properties have been removed from rent control, notably after the 1997 reforms.
This is pretty well accepted economics — see http://www.nytimes.com/2000/06/07/opinion/reckonings-a-rent-affair.html .
PG @34:
The effects of regulation (as distinct from a public option) had come up, and that’s what I was responding to. But I think the two issues are inevitably commingled. Once government is competing directly with private companies, there’s a strong temptation for the legislature to cripple the competition with regulation.
The fact that today’s incumbent insurers support aspects of the regulation doesn’t mean it’s not ultimately destructive for the industry at large. The incumbent insurers might reasonably think it’ll work as incumbency protection — maybe damaging to them in the long run, but even more damaging to potential near-term competitors. To continue with the railroad example that Robert introduced above, we saw this pattern with the ICC. It ultimately bankrupted the railroads, but it protected them from competition for quite a while, first. Insurance industry support for aspects of the president’s plan might be the beginning stages of “regulatory capture”, and nothing more.
.
Amp: i wasn’t arguing from absolutes. Free markets, like other liberties, are a matter of degree.
the US system is mixed. govt finances research at the univeristy level with NIH $$ along with private institutions like howard hughes. then start-up biotechs often license the tech and, ususlly financed by angels and VC money, develop it towards commercialization…a very expensive process that can eat up like 70 million for a cancer drug for example.
its high risk, the tech at this stage is unproven b/c there’s usually very little human data. millions have gone into trying to treat chronic wounds like diabetic foot ulcers for example but nothing has proved efficacious. these investor are willing to take the risk b/c if they can pull it off, the returns are huge. if the start up has good early-stage data in clinic they usually sell themselves to large pharma or IPO. there are about 500 such companies around the US.
I guess its this system, post nih/university/howard hughes where the market comes into play, mirroring the entrepreneurial culture one sees in silicon valley. this is what distinguishes the US from other nations and part of what it means to be a superpower. the rest of the world is dependent on us for this.
i’m not saying the obama plan, whatever that might be, will put this at risk (the market certainly doesn’t think so) but its something we all need to make sure survives, i would think.
Once government is competing directly with private companies, there’s a strong temptation for the legislature to cripple the competition with regulation.
Example?
Try to start a passenger rail company.
Robert,
As I’ve already stated, Amtrak began only when private sector passenger rail had collapsed (due in part to over-regulation by the ICC) and threatened to leave most of the country without access to passenger rail. That seems like the opposite of what is being asserted @36, which is that when government already is in competition with the private sector, it will impose regulations in order to cripple its private sector competition.
I know this might sound implausible, but the regulations that destroyed national passenger rail’s commercial viability were not promulgated because the government was dying to get into the business. (I’m sure you’re aware of Amtrak’s annual demands for ever more federal aid.) They may have been promulgated with good intentions (safety, affordability) or with bad intentions driven by private sector actors (the established railroads trying to prevent new entrants in the market; the automobile/bus industry and its suppliers deliberately trying to end the passenger rail competition), but I have seen no evidence that the government over-regulated passenger rail with the intention of going into that business itself.
PG @38:
I made an observation about temptation — I think the claim is self-evident as a claim about motives and incentives. It’s hard to find compelling examples, since a public health insurance company, competing with private competitors, is a government-established competitor to private enterprise of almost unprecedented scale.
But here are some examples to illustrate the flavor of what I have in mind.
1) The government monopoly on first-class mail. Defended, often, with the explicit argument that if we allowed FedEx to carry first-class mail, the government subsidy for rural and remote delivery would be explicit, rather than implicitly imposed on everybody who sends first-class mail.
2) States with lotteries prohibiting Internet gambling. Several Caribbean states sued over this at the WTO, and won. The tribunal held that the states in question were precisely (and illegally) favoring their state-run gaming operation as compared to private competition. Had they banned all gambling, they could have raised a public morals defense. But as it is, they seem to be simply trying to restrain competition.
3) In the 1930s, New York City refused to allow the private subway companies to raise fares to keep up with inflation. The public system, of course, was backed with tax revenues that did rise proportionally with inflation.
None of these examples is perfect, but I think they give the flavor of what I’m referring to.
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