Marginal Cost, Health Care, and the “Public Option”

by on February 18, 2010 · 18 comments

Over at “Convergences,” I write on the origins of the idea of a “public option” for health insurance. In part, I note:

At a superficial level, the “public option” for health care is both appealing and puzzling. From a competition policy standpoint, the entry into the market of a subsidized competitor offering a wide array of benefits certainly might put downward pressure on prices as well as easing humanitarian concerns about access. Equally obvious, though, are objections. What mechanism of accountability would exist to ensure that this subsidized entity is well run? It cannot be allowed to go bankrupt; nor is it likely that unhappy customers would have much leeway in suing it. How would it avoid driving private insurers out of the market for low-end service entirely? How much of a subsidy would it get, and how is this to be funded?

Since the party and administration that sponsored this proposal are associated with the intelligentsia, however, people hoping to improve the health care system probably felt entitled to trust that these questions had good answers. Somewhere, someone deep in the bowels of the brain trust had considered these issues. Curious about this, I found myself reading one of the more serious works to address the public option, a paper by Randall D. Cebul, James B. Rebitzer, Lowell J. Taylor and Mark E. Votruba entitled, “Unhealthy Insurance Markets: Search Frictions and the Cost and Quality of Health Insurance,” identified as NBER Working Paper No. 14455, from October 2008.

Read my whole piece, here.

  • nerd42

    Boo! We don't want socialized medicine to begin with because our health care system isn't broken. What's broken is our court system. We don't need health care reform, we need tort reform!

    Also, this is way off subject for this blog I think

  • Jardinero1

    Even if the public option is less desirable but well run(an oxymoron?), it would not be an effective bargainer and would contribute to the inflation of prices in healthcare provision. A public payer does not have a bottom line to meet or go out of business like a private payer does. Thus, a public payer is more willing and will always pay more than a private payer. This, by itself, would force private payers from the market eventually.

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  • mwendy

    I like Solveig's pieces – very warm, grounded in common experiences. And, while the tech connection here seems less obvious, the same issues / concerns of government control remain a constant and apply to tech issues.

  • http://enigmafoundry.wordpress.com eee_eff

    A very simple task is to measure how effective the “public option” is. In those countries with the “public option” is it popular? Yes it clearly is. Do those other countries with the public option produce better results (health outcomes) than the US does, for less money? Yes they clearly do.

    Is there a powerful health insurance lobby that is preventing normal democratic process from being realized with respect to health care reform? Yes, there is.

    Will many people die prematurely because of the effects of that lobby? Yes, absolutely.

    Can you refute even one of these arguments?

  • mwendy

    Many terrible things in our history were popular. Were they right? No.

    What is a better result? Palliative care? What a preposterous and hopeless result in those health-rationed countries.

    Is there a powerful government interest lobby preventing normal democratic process? Yes, just look to the administration, Congress and the states – not one's urging cross-border, interstate competition for health insurance plans (this “open competition” is essentially your Net Neutrality argument, eee_eff – you should be for that, right?).

    Many people will die because of the government interest lobby. Yes, absolutely.

  • mwendy

    Many terrible things in our history were popular. Were they right? No.

    What is a better result? Palliative care? What a preposterous and hopeless result in those health-rationed countries.

    Is there a powerful government interest lobby preventing normal democratic process? Yes, just look to the administration, Congress and the states – not one's urging cross-border, interstate competition for health insurance plans (this “open competition” is essentially your Net Neutrality argument, eee_eff – you should be for that, right?).

    Many people will die because of the government interest lobby. Yes, absolutely.

  • http://enigmafoundry.wordpress.com eee_eff

    So, obviously European countries that have single payer systems should be paying more for their healthcare–oh wait! that's not the case, they pay less and have better outcomes. Woops, better think of a new argument…

  • http://enigmafoundry.wordpress.com eee_eff

    Of course many bad things were popular. For example Alan Greenspan's Free Market Fundamentalism was popular for a short time, until everybody realized it was a fraud.

    However, in nearly every industrialized country, there exists single payer healthcare, and it is popular in every one of them. How do you ex-palin that?

  • mwendy

    We don't live in those far way places, in their cultures, with their geographic and socioeconomic mixes. We live here. But, if you want to use “popularity” as a metric, the people here, in the exceptional U.S., are nearly 2- 1 against what's being offered right now by Congress / Admin as “reform”.

    No one doubts reform is needed or desirable. They do doubt the “solution” offered by those now in charge.

  • Jardinero1

    That depends on how you define better outcomes. Single payor systems in European countries an Canada pay less in the aggregate because they refuse to pay for the same treatment options as American insurers. For example, in Canada, patients are refused thalidomide for myeloma cancer treatment and then they die; even though thalidomide is cheap and efficacious. Decisions like these, which are driven by a political considerations, not economic or health considerations, make Canadian healthcare cheaper but I am not sure that is a better outcome.

    Anyway, you missed my point which is that an entity with no bottom line(the government) will not bargain as hard or as effectiviely as an entity with a bottom line(private insurers).

  • http://enigmafoundry.wordpress.com eee_eff

    Not at all did I miss your point, I just disagree with it. The government is in a better position to bargain with big pharma than many consumers, Canadians do pay less for their pharmaceuticals than US does, and it it not true that they are denied any efficacious treatments. If they were, their single payer system would not be popular, but it is.

  • http://enigmafoundry.wordpress.com eee_eff

    That is not true, Obama was elected, and he made healthcare reform a priority. It is true that a massive well funded disinformation campaign by the health insurance lobby has distorted the debate and created confusion. If single payer healthcare system were ever passed, it would be so popular it would never go away, which the free market fundamentalists know. They don't care how many innocent people will die because of inadequate healthcare–their only goal is to stop this program from being a success because it does not fit with their power agenda. They are all criminals and murderers.

  • Jardinero1

    You speak in platitudes about better outcomes and popularity but you omit statistical data and /or specific examples to back your claims.

    I cited a specific example where the Canadian healthcare system refuses to provide an efficacious treatment and patients are left to die. If you Google “Thalidomide, myeloma, Canada” you can read all about it. This is one example among many. Reading further about that specific example will reveal that Canadians who wish to use their own funds to purchase thalidomide must pay a price which is far in excess of what Americans pay. Thus, it is also untrue that Canadians pay less for their pharmaceuticals. Furthermore, if they go to the USA to purchase it and bring it back to Canada they can be jailed in Canada. I challenge you to refute this example or explain how this is a better outcome.

    You can believe that government is an effective bargainer but it is historically and empircally untrue that government gets a better price for a given good or service than a private sector bargainer. I challenge you to find a specific example in the USA where the government pays less.

  • http://enigmafoundry.wordpress.com eee_eff

    Rather than cite just one anecdote about a particular treatment, look at overall outcomes, and it is clear that USA, despite outspending every other county, has poor public health outcomes:

    “Seven years ago, the World Health Organization made the first major effort to rank the health systems of 191 nations. France and Italy took the top two spots; the United States was a dismal 37th. More recently, the highly regarded Commonwealth Fund has pioneered in comparing the United States with other advanced nations through surveys of patients and doctors and analysis of other data. Its latest report, issued in May, ranked the United States last or next-to-last compared with five other nations — Australia, Canada, Germany, New Zealand and the United Kingdom — on most measures of performance, including quality of care and access to it. Other comparative studies also put the United States in a relatively bad light.

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  • http://www.ourhealthierliving.com/ The Health Dude

    “Health is wealth” is known to all and everyone wants good health. That means no one wants to leave this wealth. So, Let us build a food habit discipline, keep pace with work, rest and or exercise to Achieve good health, The ultimate wealth.

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