Is the Public Option the Wal-Mart of Health Care?

Peter Suderman | June 22, 2009

Republicans and conservatives are arguing that a so-called "public option" -- a government administered health-insurance plan -- is a bad idea because it would compete unfairly and shift many of the insured onto its rolls, exposing millions of Americans to poor quality, government-run health care. Liberals defend the idea of a public plan by saying that it helps control health-insurance prices by providing a low cost competitor that, due to its size, has a lot of bargaining power with medical manufacturers.

Where have I heard this argument before? Oh right -- in the never-ending left/right squabbles over bargain-mad super-retailer Wal-Mart. Except in the Wal-Mart debate, the roles are reversed. Liberals dislike the way Wal-Mart crowds out other retailers, the "monopsony power" it exercises over suppliers to get products on the cheap, and the relatively low quality goods it provides; conservatives argue that it's a triumph of the market -- using a relentless focus on low prices to make a wealth of retail commodoties and groceries affordable and available to all.

Of course, the analogy only goes so far before it breaks down: Wal-Mart isn't subject to the same sorts of political considerations that would inevitably plague a public plan. Just as the auto-bailouts have injected parochial politics into the car business, a public plan will almost certainly make legislators' regional interests part of the decision-making process. Nor is Wal-Mart subject to regulations like community rating and guaranteed issue, as any public plan would be, which place strict limits on how it can conduct its business. Wal-Mart might not be the most aesthetically pleasing retail environment, but it is relatively efficient, and it's inarguably successful at delivering high-volume, low-cost goods to the largest possible number of people. A public plan, bogged down by politics and regulation, likely wouldn't be. Rather than Wal-Mart, it would probably end up more like K-Mart -- outdated, poorly managed, and financially unsound.

Further reading: Last year, Reason senior editor Michael Moynihan wrote in defense of big-box stores.

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|6.22.09 @ 4:37PM|#

Peter, you are failing to recognize the simplistic logic of the statists' collective mindset.

Public, i.e. government controlled = as pure and good as freshly fallen snow in the pristine arctic wilderness.

Private, i.e. controlled by the individual or a voluntary association of individuals = as dark, black, and evil as the Congo during King Leopold's reign.

Fluffy|6.22.09 @ 4:46PM|#

If the "public option" were completely and 100% funded by premium payments, it would be less objectionable.

I'd still object to it, of course - but at least it would not be taking tax dollars paid by people who work for insurance companies and using those tax dollars to subsidize undercutting the insurance companies. That part of the "compete unfairly" picture has to be stressed.

|6.22.09 @ 4:49PM|#

but at least it would not be taking tax dollars paid by people who work for insurance companies and using those tax dollars to subsidize undercutting the insurance companies

Or the auto bailout tax money taken from workers at Ford, Toyota, etc.

|6.22.09 @ 4:54PM|#

|6.22.09 @ 4:55PM|#

If the "public option" were completely and 100% funded by premium payments, it would be less objectionable.

Why? With so many other subsidies in our system (most of them fucking worthless to the average American but quite valuable to the industries that receive them) why is it so objectionable to subsidize health care...something that actually will benefit almost everyone in the system?

|6.22.09 @ 4:57PM|#

classwarrior|6.22.09 @ 5:00PM|#

Peter, I love it when libertarians complain about "unfair" competition from Medicare, but don't have problems with competition from China with its extremely lax environmental regulations, lack of worker rights, and manipulated currency exchange rates.
About "poor quality" government health care, what HMOs provide is quite a bit worse (http://www.pubmedcentral.nih.gov/articlerender.fcgi?artid=1304203)judging by patient satisfaction.
Time for a little intellectual honesty perhaps?

|6.22.09 @ 5:02PM|#

something that actually will benefit almost everyone in the system?

Really? Having rationed, shitty health care is better than what all the people who have employer-provided health insurance have?

I don't like the current system--it should not be tied to employment--but you can't say with a straight face that government health benefits will be better for, say, someone with a good Aetna plan through work.

Jordan|6.22.09 @ 5:09PM|#

About "poor quality" government health care, what HMOs provide is quite a bit worse (http://www.pubmedcentral.nih.gov/articlerender.fcgi?artid=1304203)judging by patient satisfaction.

And of course HMOs have been heavily promoted and subsidized by governments at both the Federal and State levels.

Fluffy|6.22.09 @ 5:19PM|#

Why? With so many other subsidies in our system (most of them fucking worthless to the average American but quite valuable to the industries that receive them) why is it so objectionable to subsidize health care...something that actually will benefit almost everyone in the system?

Well, first of all, public option advocates keep INSISTING that private health insurance is more expensive than it has to be, because of insurance company profits and administrative costs, and that government could deliver the same insurance cheaper because it wouldn't need to generate profits and would have lower administrative costs. That means that, unless the people who have advanced this argument are lying douchebags, the public option should not require tax subsidy, but should be fundable entirely from premiums, and lower premiums than those of private insurance to boot.

Second of all, everyone in the system doesn't benefit if the "public option" uses tax dollars to underprice and destroy its private competition, thus transforming itself into the only player in the market. I know that's your plan, but you could have the common decency to not get your panties all twisted when other people IDENTIFY your plan.

mark|6.22.09 @ 6:13PM|#

Peter, I love it when libertarians complain about "unfair" competition from Medicare, but don't have problems with competition from China with its extremely lax environmental regulations, lack of worker rights, and manipulated currency exchange rates.

Well if we had a currency based on something, they would have a lot harder time manipulating it. But even if they didn't, and sold products below cost, that would be their loss.

|6.22.09 @ 6:24PM|#

Well, first of all, public option advocates keep INSISTING that private health insurance is more expensive than it has to be, because of insurance company profits and administrative costs,

This statement is objectively true, right? I mean take the profit motive away and the price should have to go down, right?

and that government could deliver the same insurance cheaper because it wouldn't need to generate profits and would have lower administrative costs.

Again this is an objectively true statement. If government isn't trying to turn a profit, just to cover costs, then it should be cheaper than the guy trying to turn a profit.

Now it depends on how the premiums are structured.

If the system is meant to be affordable to all people (even the poor who can't really afford even the barest bones of bare bones plans) and there will be a mandate for all people to have coverage, then some type of subsidy will probably be used to cover people who can't afford the premiums. So the premiums should cover the costs -- assuming everyone is paying the premiums -- but if some people can't then the subsidy would probably kick in to assist those who can't afford it.

Second of all, everyone in the system doesn't benefit if the "public option" uses tax dollars to underprice and destroy its private competition, thus transforming itself into the only player in the market. I know that's your plan, but you could have the common decency to not get your panties all twisted when other people IDENTIFY your plan.

Well I don't see it as "destroying" private competition. It will instead force private insurers to compete on price and service (something they don't do all that much currently). It will also force them to make smarter investments and not allow them to just pass the cost of those bad investments on to the policy holders (insurance companies don't just make money from premiums...they take those premiums and invest them in equities -- one big reason why premiums jumped 30% per year post dot-com bubble -- despite the fact that their outlays from health claims wasn't that different from the previous years -- was because of how poorly the stock market did. Because insurance companies took heavy losses in their investments, the jacked up rates to recover parts of their bad bets.)

But even if for profit insurance companies can't compete, and they do get destroyed...so what? You are implying that if private insurers leave the marketplace, the somehow that is inherently a bad thing. But it isn't necessarily a bad thing.

It might be bad if the government coverage/benefits are very very crappy, but if that's the case then people who can afford it will be willing to pay more for the private insurance that would provide superior coverage. Which means private insurers won't be destroyed -- they will be able to compete on benefits/coverage .

The only way private insurance leaves the market place is if the government service is so good that people want it and private insurance is unwilling or unable to compete. And if that happens -- well great people will still get good coverage.

It's a win win for consumers. It might not be a good prospect for the insurance companies -- but who cares? They have plenty of other things to insure outside of my health. They can focus on those more lucrative markets.

Either the gov't option will be good, and won't need competition, or the gov't option will be crap, and private industry will be able to compete and will do well.

What's the problem again?

MattXIV|6.22.09 @ 6:29PM|#

We already have insurance companies that have near Wal-Mart-sized economies of scale and market power - Kaiser Permanente comes to mind, especially their California operations. HMOs were designed to achieve effects similar to what Wal-Mart does with its supply chain; I'd say it hasn't worked out quite as well as the analogous retail efforts.

Actually, the polling data strongly supports that most people would rather keep their current plans. What pisses people off about the system is a) if they don't have an employer-based plan health insurance is expensive, and even if they can afford it they get screwed on taxes b) if they have a good employer based plan, they can't take it with them when they change jobs.

Thus, I don't think a government plan would undercut exisiting insurance companies unless it was subsidized so it could operate at a loss.

Gene Berkman|6.22.09 @ 6:46PM|#

If the "Public Option" is really more efficient, why are people in the administration trying to come up with new taxes to help pay for it?

If President Obama wants everyone to have medical insurance, why are his people talking about taxing medical benefits provided by private employers?

Note to Chicago Tom: there are many examples of services badly and expensively provided by government that are less expensive and better quality when provided by profit making institutions. This is even more clear when taxpayer subsidies of government programs are added to fees charged to participants.

|6.22.09 @ 7:42PM|#

If government isn't trying to turn a profit, just to cover costs, then it should be cheaper than the guy trying to turn a profit.

You're assuming the costs remain the same...but in actuality the profit motive is helping to keep costs down.

This is why a private education in DC costs like 2/3 as much as a public high school education does.

|6.22.09 @ 7:43PM|#

Wow, I totally missed Gene's comment before mine. What he said.

The Angry Optimist|6.22.09 @ 7:54PM|#

This statement is objectively true, right? I mean take the profit motive away and the price should have to go down, right?

*guffaw* - NO! This just shows me where you're coming from. By your logic, strip the profit motive out of food and make that public...the price will have to come down...right?

Jesus Crispies.

Sean W. Malone|6.22.09 @ 8:13PM|#

"This statement is objectively true, right? I mean take the profit motive away and the price should have to go down, right?"

In WHAT universe would this be objectively true? Ugh... Yet again, bad logic is foisted up as "good" because you're only looking at the issue from one side.

When firms are actually subject to market competition, then the profit motive is balanced against the pressure from competitors to lower prices and offer a better deal - and therefore attract more consumers. This means two things:

1. The market price of any good, absent government intervention, will be consistently pressured to be lower, and thus in general be about as low as it can be at any given time (subject to some fluctuation of course)

and

2. Increases in profits will have to primarily come from innovations in production of that good and lowering of costs internally. Which means... That the goods are becoming more efficiently made and cheaper for everyone.

This should be obvious to everyone, but sadly, it apparently isn't - even when you see these things in action daily with every industry that isn't so heavily regulated & subsidized by government. I still haven't figured out why this stuff is so hard to understand.

Sean W. Malone|6.22.09 @ 8:16PM|#

Absent the profit motive, btw, there's no incentive to compete with anyone - and little to no incentive to make wise spending decisions (you are obviously not trying to increase net wealth to you or any stockholders, so why worry about going a bit over budget?)

And of course, government works completely differently from any company - and can't even be compared to a 501c(3) type non-profit organization since those, like all for-profit businesses, have to get people to give them money voluntarily. Government has a thousand extra incentives to waste money and make things much much much more expensive.

I keep asking people this, but we now have about 50% of all medical spending in the US done by the government. If government involvement was the solution, wouldn't we have seen a significant improvement in health care over the last 3-4 decades??

Michael Ejercito|6.22.09 @ 8:23PM|#

If the "public option" were completely and 100% funded by premium payments, it would be less objectionable.

I floated this idea on Usenet a couple of years back.

Should Medicare Be Available to All AND Be Voluntary?

jtuf|6.22.09 @ 10:50PM|#

Still, it strikes me that most of the arguments in favor of a public plan also apply to Wal-Mart, and that those advocating a public-plan in health reform might consider that next time they're inclined to attack the big-box retailer.

Wal-Mart makes goods and services available to people in the $5,000 to $25,ooo income range who would otherwise have difficulty paying for them. A national healthcare plan would make goods and services available to the $25,000 to $45,000 income range who would otherwise have difficulty paying for them. The liberal policy position makes perfect sense if you assume rational self interest.

Fluffy|6.23.09 @ 8:44AM|#

If the system is meant to be affordable to all people (even the poor who can't really afford even the barest bones of bare bones plans) and there will be a mandate for all people to have coverage, then some type of subsidy will probably be used to cover people who can't afford the premiums. So the premiums should cover the costs -- assuming everyone is paying the premiums -- but if some people can't then the subsidy would probably kick in to assist those who can't afford it.

The problem with this approach is that I think I can safely assume bad faith on the part of the administrators of the government plan, and on the part of advocates for the plan like you.

If the plan set a premium rate that genuinely covered the plan's costs, but then gave a credit to poor people so they could join the plan, this would be no more objectionable than any other welfare payment.

But that is not what would happen. What would happen is that the premium rate would be set at a level that middle-class people think they "should" pay, and the difference would be made up in tax dollars. And then you would come around telling me how "efficient" the plan is, disregarding the fact that it operates at a massive loss.

But even if for profit insurance companies can't compete, and they do get destroyed...so what? You are implying that if private insurers leave the marketplace, the somehow that is inherently a bad thing. But it isn't necessarily a bad thing.

The reason that private insurers will be driven from the marketplace is to gain a stranglehold over health care providers. Providers are ultimately going to be ass-raped to pay for this, but that can't happen as long as the private insurers exist and providers can just opt out of the public plan and tell you to fuck off. If the public plan is forced to compete for both subscribers and providers, the private insurers will remain in business and the public plan won't be able to turn into the provider rape machine it wants to be.

|6.23.09 @ 8:58AM|#

The major difference between Wal-Mart and a government plan is who it would crowd out. Wal-Mart crowds out local businesses that typically deliver quality goods at a marginally higher price. In contrast, a government insurance plan would compete with big insurance companies that every year cost more and more while delivering worse and worse service. Why? Because there isn't actually any competition.

I'm not sure how I feel about the "public option," but it's for damn sure better than the terrible, non-competitive system we have now. And this coming from a guy who has great, cheap insurance through my employer. I have no problem crowding out the garbage insurers that most of my friends are forced to use. On the other hand, Medicare is over 3 times as expensive as my insurance, so I think my HMO will be fine.

Fluffy|6.23.09 @ 9:36AM|#

Oh, and I suppose it bears repeating that another reason that I don't want tax subsidy of the public option is because if I have private insurance I don't want to pay TWICE for health care - once in taxes and once privately.

If the critique of private insurance offered by the left is true, then it shouldn't be necessary to use taxes to pay for the public option and it shouldn't be necessary for me to pay twice. I don't want to be sold a pig in a poke.

Sean W. Malone|6.23.09 @ 10:30AM|#

When did this site get infused with people who are economically illiterate and who have no understanding of the difference between voluntary action & force?

Wal-Mart competes legitimately and is capable of losing if they make bad, unpopular or inefficient choices. Government does not "compete" with anyone! They have no possibility of losing because if they do poorly, they can simply levy more taxes by force.

GOVERNMENT IS NOT A MARKET PARTICIPANT.

The laws of supply and demand, the incentives of profit & loss, and the pressures to reduce costs, offer a better and cheaper product, or to innovate *do not* apply to government.

Wal-Mart does not get to pay it's employees by taxing the employees of another company.

Why does no one seem to understand the difference anymore??? It's such a fucking red herring for people to talk suggest stuff like; "libertarians should welcome the competition, right?" Don't you people get the difference? Government has the monopoly on FORCE. No one else can... Do yourselves this favor. Imagine that instead of government, a new company entered the health-care market, and they didn't offer a better product - but they run around pointing guns at people taking their money all the same. Is that a legitimate competition?

It makes me cry to say that, because of course - that's exactly what GM & AIG just managed to do.

|6.23.09 @ 1:57PM|#

Either the gov't option will be good, and won't need competition,

Ever? Even if its good to begin with (*snerk*), there is no reason to believe it will remain crisp, efficient, user-friendly, and forward looking without competition.

or the gov't option will be crap, and private industry will be able to compete and will do well.

Except, of course, that the government can outcompete private industry by subsidizing its own prices down to the point where people will put up with the crappy service because its such a bargain.

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