“An important question about any public provider of health insurance is whether it would have access to taxpayer funds. If not, the public plan would have to stand on its own financially, as private plans do, covering all expenses with premiums from those who signed up for it.
But if such a plan were desirable and feasible, nothing would stop someone from setting it up right now. In essence, a public plan without taxpayer support would be yet another nonprofit company offering health insurance. The fundamental viability of the enterprise does not depend on whether the employees are called “nonprofit administrators” or “civil servants.”
In practice, however, if a public option is available, it will probably enjoy taxpayer subsidies.
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Such explicit or implicit subsidies would prevent a public plan from providing honest competition for private suppliers of health insurance. Instead, the public plan would likely undercut private firms and get an undue share of the market.
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A dominant government insurer, however, could potentially keep costs down by squeezing the suppliers of health care. This cost control works not by fostering honest competition but by thwarting it.
Recall a basic lesson of economics: A market participant with a dominant position can influence prices in a way that a small, competitive player cannot. A monopoly — a seller without competitors — can profitably raise the price of its product above the competitive level by reducing the quantity it supplies to the market. Similarly, a monopsony — a buyer without competitors — can reduce the price it pays below the competitive level by reducing the quantity it demands.
This lesson applies directly to the market for health care. If the government has a dominant role in buying the services of doctors and other health care providers, it can force prices down. Once the government is virtually the only game in town, health care providers will have little choice but to take whatever they can get. It is no wonder that the American Medical Association opposes the public option.”
By N. Gregory Mankiw, “The Pitfalls of the Public Option”, The New York Times (27 June 2009).
http://www.nytimes.com/2009/06/28/business/economy/28view.html?_r=1&ref=business
N. Gregory Mankiw is a professor of economics at Harvard. He was an adviser to President George W. Bush.
As Professor Mankiw points out, there is no purpose in having a public health care insurance option if all it is going to do is provide the same services as a regular provider in the market. Currently there are hundreds of health care insurance providers and adding one more competing under the same terms as the others will do nothing to affect the market in any fundamental way. If the “public option” were to have any influence, it would have to be subsidized and in the end it would undermine current providers.
One can conclude from this that the real intention of the government is to slowly but surely crowd out private health care insurers and move the country toward a “single payer” government monopoly of health care services in the U.S. It can’t introduce a single payer system instantly but over time as the infrastructure for a government monopoly is put in place, the proposed health care insurance cartel now under discussion will morph into a single-payer, universal health care delivery system.
If it is to work, a single payer system must be at once both a monopoly provider of health care and a monopsony purchaser of health care resources. There can be no middle ground for the forces at work necessitate an eventual government monopoly of services supplied and monopsony of resources demand.
In the beginning the reforms now under discussion will encompass only a fraction of the population, but it is the expensive fraction of households and individuals with pre-existing conditions and poorer health status. In order to control costs effectively it will be necessary for the government’s health care cartel to pay fees as low as possible to health care providers such as doctors, nurses and other medical practitioners and limit the provision of services and the quality of care provided. If it does not, it will not be able to compete with other health insurance providers, who serve healthier segments of the population such as those who are employed. But lower fees will only buy inferior resources and cost-cutting will lower the quality of care.
In response, a two-tier system can be expected to develop, with higher income households opting for private health care insurance and private health care delivery. Initially, these households will pay the extra taxes on the private plans and on top of that pay higher fees to obtain the quality of care they desire, much the same way that “free” but lower quality public schools can exist side-by-side with expensive, higher quality private schools. But this situation cannot continue over the longer-term.
One problem for the government’s cartel is that the very existence of a private health care market raises the wages and salaries of health care professionals, both those in the private market and those working for the cartel. There are all sorts of ways this can occur. The best physicians will take advantage of their superior skills by serving high-paying households in a private health care market and earn income far higher than those available to doctors working for the cartel. This will put upward pressure on the cartel salaries. Even physicians in government service or willing to accept the cartel’s reimbursement rates will attempt to “top off” their salaries with (hidden or otherwise) payments for extra or better service. The existence of a private market in health care and accepting more than the standard reimbursement rate not only undermines cost controls but defeats the very idea of equal health care for all. In the long-run, it cannot be tolerated and is the reason why private provision and private health care insurance is forbidden in many countries with universal health care.
Hence, eventually prohibitions against doctors taking private patients becomes necessary to maintain control of the health care market. Only if the government has a monopsony on the hiring of physicians and other health care workers can a lid be kept on the wages and salaries they are paid, which is a key element of health care costs. Similarly, the monopsonistic position of the cartel will allow it to control all resources entering the health care sector, from drugs to ambulances to bandages to hospital beds.
In sum, without all these controls a single payer system becomes a two-tier system of markedly unequal health care, exactly what critics of the present system say they dislike the most about it. On the other hand, with the controls a single payer system sinks into rationed and arbitrary care, abysmal quality and long waits even for simple procedures.
Much better would be a free private health care insurance market, focused on catastrophic coverage, supplemented by efforts of local governments and charities and churches to ensure adequate health care for those not covered by any insurance.
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