When You Don't Have to Make Money, You Don't Have to Save Money Either

Peter Suderman | September 30, 2009

Is the government-run public health-care option dead? As Katherine Mangu-Ward noted yesterday, the answer is yes, mostly. To which I would also add, probably, maybe, and for now. Although the Finance Committee has firmly rejected two public plan proposals, it's still possible—if highly unlikely—that we could see a public plan inserted into a final bill at some later point. Which means that, although the public-option piñata may be down, it's still worth giving it a few more whacks.

Here's Chuck Schumer defending the public option as a cost-saving mechanism:

Mr. Schumer said the public option would hold down costs because it would not have to generate profits, answer to shareholders or incur marketing expenses.

 

Well, it's not actually clear that it would be able to avoid marketing expenses. Lots of publicly funded programs have marketing budgets (Washington's Metro system, for example, which advertises incessantly within the Metro system, as if all those poor schmoes who pay 20 percent more in rent each month just to live near a Metro stop might at any time forget that it existed), and competing with private insurers would likely require public plan administrators to make some effort to let people know about their program.

But let's ignore that for a moment and assume that Schumer's statement is right. The public option, as many of its supporters have noted, would essentially be an optional variant on Medicare—which we all know has done a fantastic job holding down costs over the years, right?*

Contra Mr. Schumer, it strikes me that the profit motive is actually likely to hold down costs better than the public-service motive. Profit-seeking firms have an incentive to be more efficient and cost-effective. A government-run plan, on the other hand, would be motivated to increase (and lock in) its constituency, regardless of the cost.

It's an amazing scam, and anyone can do it. Indeed, that's part of the reason why marketing would be so likely: Government agencies want to prove their value and usefulness, but absent the normal market signals of profit and loss, they tend to do that by seeking to increase the number of people who use their services. And when you don't have to make a profit, there's a pretty easy way to do that: provide services at less than cost. Sure, that will result in losses, but look how many people make use of the program!

You follow this by asking Congress for more taxpayer money to make up for the losses, using that money to increase your constituency again, and then returning to Congress for another handout while saying, "Look how successful we've been!" Wash, rinse, repeat. Isn't bureaucracy fun?

The public plan has been dying for a long time now. I wrote about the early stages of its death all the way back in June. 

*Ha-ha, right. Here's what the CBO says (bold mine): "Measured relative to GDP, almost all of the projected growth in federal spending other than interest payments on the debt stems from the three largest entitlement programs—Medicare, Medicaid, and Social Security. For decades, spending on Medicare and Medicaid has been growing faster than the economy."

Comments

Spartacus|9.30.09 @ 12:03PM|#

Government agencies measure success by
1) the size of their budget, and
2) the number of staff positions they have.
(Number of buttons on your phone used to be a measure also, back in tht old days)
"Serving clients" is only a mechanism for getting budget increases and more positions.

This is not a recipe for savings.

Rich|9.30.09 @ 12:06PM|#

More amusement from the VRWC: Congress's Secret Plan to Pass Obamacare.

Attorney|9.30.09 @ 12:18PM|#

Mr. Schumer said the public option would hold down costs because it would not have to generate profits, answer to shareholders or incur marketing expenses.

Because, as we all know, prices are determined by how much profit the seller wants to make.

(Note to self: Increase hourly rate to $500k. Then retire after 8 more hours of work.)

Spartacus|9.30.09 @ 12:23PM|#

Mr. Schumer said the public option would hold down costs because it would not have to generate profits, answer to shareholders or incur marketing expenses.

The more I read this sentence, the dumber it gets. I'm guessing that Mr. Schumer has never held a job outside of government. Am I right?

|9.30.09 @ 12:26PM|#

Mr. Schumer said the public option would hold down costs because it would not have to generate profits

Dear Chucky-

"Profits" are a highly effective measure of EFFICIENCY.

Please carve that on your forehead.

And on Nancy's forehead, too.

hugs 'n kisses

Spartacus|9.30.09 @ 12:28PM|#

I wonder if he's concerned about whether his Caribbean rental properties generate profits?

|9.30.09 @ 12:33PM|#

The more I read this sentence, the dumber it gets.

Chuckles is the Michael Bay of politics.

*He's* not stupid, but his actions clearly indicate that he thinks that the bulk of the voting public are simpering, drooling morons.

|9.30.09 @ 12:39PM|#

"Mr. Schumer said the public option would hold down costs because it would not have to generate profits, answer to shareholders or incur marketing expenses."

I have often seen ads in the New York City subways not only advertising the subway itself, but other government services, like free food and free healthcare. Try again, Chucky.

|9.30.09 @ 12:40PM|#

The more I read this sentence, the dumber it gets. I'm guessing that Mr. Schumer has never held a job outside of government. Am I right?

This is exactly true. He graduated from Harvard and immediately went into public service. http://en.wikipedia.org/wiki/Chuck_Schumer
I know it's wikipedia so normally it should be fact checked, but there's no way Chuck let's anything stay on his page that is not true and flattering. No way in hell.

|9.30.09 @ 12:45PM|#

Why does the Postal Service advertise, Senator? The armed forces also advertise and they are completely public, everyone knows they exist, and everyone knows they can join.

|9.30.09 @ 12:54PM|#

The victims of private insurance.

JB|9.30.09 @ 12:54PM|#

"Mr. Schumer said the public option would hold down costs because it would not have to generate profits..."

They really are that fucking dumb. Government is inefficient because there are no incentives to be efficient. Profits and competition are GIANT incentives to be efficient.

|9.30.09 @ 12:56PM|#

I see Mr. Schumer is presenting the usual dilemma:

Is he stupid? Or just evil?

Sounds like the commentariat is leaning toward evil.

|9.30.09 @ 1:09PM|#

SugarFree,

I actually think I walked past that protest yesterday as I headed to Grand Central after work, walking north on Park Avenue. There was a hand written sign insisting, "Private health insurance has got to go!" I didn't see those ladies, though; I was on the other side of Park Avenue, and only saw the sign because it was higher than the cars driving by.

|9.30.09 @ 1:14PM|#

I really don't understand the appeal of the public plan to anyone other than power mongers.

If the goal is to make insurance accessible to the uber-poor (because everyone else can afford it besides the truly destitute), then why not subsidize them for it like we do for other things like food?

It doesn't make any sense on any level to have a public plan unless the goal is to eliminate private insurance and give all the power to government.

Mike Wilson|9.30.09 @ 1:16PM|#

JB: "Government is inefficient because there are no incentives to be efficient."

That's the Tao of the nightmare we're in, perfectly stated.

|9.30.09 @ 1:24PM|#

Silly Schumer...the public option for uninsurable risks on property...AKA FLOOD INSURANCE...markets the heck out of its products and pays a nice comission to those who write the policies. You want to see a government nightmare in action? Write a flood policy. Want to see an even bigger one? Handle one as a claim.

Zeb|9.30.09 @ 1:59PM|#

"The victims of private insurance."

Are the insurance companies the ones who made them so fat and ugly?

Joe M|9.30.09 @ 2:01PM|#

The more I read this sentence, the dumber it gets. I'm guessing that Mr. Schumer has never held a job outside of government. Am I right?

From wikipedia: [Schumer] attended Harvard College, where he became interested in politics and campaigned for Eugene McCarthy in 1968.[5] After completing his undergraduate degree, he continued to Harvard Law School, earning his Juris Doctor in 1974. Schumer passed the New York State Bar Exam in early 1975 but never practiced law, entering politics instead.[6]

comrade|9.30.09 @ 2:02PM|#

The victims of private insurance.

I suppose we can add 'fat fucks trying to externalize the cost of their healthcare' to the list of socialized medicine proponents.

comrade|9.30.09 @ 2:06PM|#

Call it the Michael Moore school of universal healthcare advocacy.

|9.30.09 @ 2:11PM|#

If the goal is to make insurance accessible to the uber-poor (because everyone else can afford it besides the truly destitute), then why not subsidize them for it like we do for other things like food deregulate it so companies can offer policies the poor can afford?

comrade|9.30.09 @ 2:24PM|#

But profit evil corporations greed!

|9.30.09 @ 3:16PM|#

Lately, I've seen more advertisments by the public shipping option than I've seen by all the health insurance companies combined.

Adam W.|9.30.09 @ 8:46PM|#

Don't call me a schmo :(
At least I don't have to pay for a car.

make money online |10.3.09 @ 11:57PM|#

great post.