Home
I was reading a debate on healthcare in the recent Newsweek. The prominent Democrat supported some sort of national healthcare while the prominent Republican supported more of a free market approach. Most people will probably take sides based on their assumptions about government efficiency versus market efficiency.

An old joke that works as its own punch line goes "I'm from the government and I'm here to help." Most people in this country reflexively believe the government will screw up anything it touches. There's plenty of evidence for that view.

But I wonder if government can be more efficient than the free market in specific situations, specifically in situations where the service is more about software than headcount, and where nothing needs to be invented.

Imagine a situation where you are deciding if a particular service should be handled by the government or by a hypothetical free market dominated by three players. The government's incentive is to provide the service as cheaply as it can. Any company's incentive is to transfer the greatest amount of money from consumers to stockholders. And to do that in a competitive industry you usually end up with what I call confusopolies. A confusopoly is a situation in which companies pretend to compete on price, service, and features but in fact they are just trying to confuse customers so no one can do comparison shopping.

Cell phone companies are the best example of confusopolies. The average consumer finds it impossible to decipher which carrier has the best deal, so carriers don't have normal market pressure to lower prices. It's a virtual cartel without the illegal part.

The advantage of a free market system is innovation. The market has an incentive to try new things. Governments prefer to avoid risks. If you need innovation, you want the free market.

In the case of national healthcare insurance, I ask myself these questions:
  1. Is it more about software than headcount?
  2. How important is innovation?
  3. Is the free market for this service a natural confusopoly?


Before you call me a socialist, I don't have an informed opinion on national healthcare. But I also don't have an automatic bias in favor of a free market that gave us Enron, WorldCom, Madoff, derivatives, and mortgages to hobos. I think you have to look at the specifics.

 
Rank Up Rank Down Votes:  +13
  • Print
  • Share

Comments

Sort By:
+1 Rank Up Rank Down
May 7, 2009
As an Australian retiree who has worked roughly 50% in the government and private sectors I see no justification to assume that either one will be more or less efficient than the other. Once either side goes bureaucratic it will eventually end up being run by pointy haired lunatics. That, I think is a corollary to the Peter Principle. It was once thought that the private side was self cleansing by corporate failure in such cases. Not any more I think. As for health care, it seems to me that the the most effective system is to have a well funded government system in competition with private providers for those who can afford to pay extra to avoid the inevitable queues in the government system. There does seem to be considerable confusion in English speaking countries, particularly the USA, that monopoly capitalism equals free enterprise. It does not, there is neither freedom nor enterprise in any of the huge corporations world wide.
 
 
+1 Rank Up Rank Down
May 7, 2009
I think the innovation of the free market is extremely important. Although it's the government that should be stepping in to regulate and help avoid confusopolies.

Think about your own case with spasmpdic dysphonia. You probably had to pay for that new procedure out of pocket. When you spend your own money, you channel that to those whom you believe deserve it the most. Those with more severe conditions (and money) will take some risks and fuel the innovative procedures regular insurance won't touch. This is one idea behind the Health Savings Account.

If you were relying on the government or a confusopoly to take care of your spasmodic dysphonia, I think you would still be waiting.
 
 
May 7, 2009
You lost me right about here: "The government's incentive is to provide the service as cheaply as it can."
For each individual bureaucrat in the government, the primary incentive is to increase the size of their program and the number of people working for them so that they have to be promoted. The secondary incentive is to not do anything that would increase the risk of them losing their job, which means turning off the brain and sticking to the letter of policy that requires the least amount of work. For the politicians setting the highest level budgets, the incentives are to please constituencies from which they derive their power.
 
 
May 7, 2009
Your assumptions about the motivation and capabilities of government agencies are completely off-base. I'd argue that there's no government agency in existence that's motivated to do anything "as cheaply as possible". To be fair, they're going to do many things in a very, very cheap way, but this rarely has the effect of achieving their nominal missions more efficiently.

Instead, consider the true motivation of all government agencies. Though the nominal mission ("collect taxes", "make food safe", "regulate commerce") will vary, the true motivation of government agencies is much simpler: expand the budget and influence of the agency (and by association, the director of that agency). Any other perceived motivation is a deception. Go on - check it out. I'll wait.




See??

Next, consider the tactics that are directed at achieving this goal. Since these agencies increase in size and influence mainly by producing more good publicity than bad publicity, the most tactically straightforward way for most government agency to succeed is simply to stay out of the newspapers. All else being equal, if an agency manages this, it'll grow simply due to its own inertia and the misfortunes of other less clearly-focused peers.

The cold chill you're experiencing right now is the realization that this is undeniably true.

This completely and neatly explains the status of most government agencies: massive numbers of people, all appearing quite busily engaged in cheap activities, but whom as a unit produce very little actual progress.

On the other hand, most insurance companies operate in exactly the same way, which goes a long way toward explaining the current state of our health care system.
 
 
May 7, 2009
@hyperactivex

What? The US has no real left? The US has ONLY left. We have a broken system that provides 2 parties. The parties of far left, and center left.
The US is supposed to be a republic (states rights), which is right of center. A good percentage of people in the US mistakenly think we are a democracy (center). While others want to push us toward socialism (way left)

Our founders created a republic for a reason. Less government, more freedom/liberty. More government brings less freedom.

So, since socialism is complete government control, it goes against everything this country was founded on. The founders viewed socialism as a fate worse than death. To quote John Henry, "Give me libery, or give me death"
 
 
May 7, 2009
Both the free market and the socialism approach to healthcare will probably kill the system, it's just a matter of how fast you are going when you hit the wall.

With government run healthcare, most of the doctors will be average, more interested in churning through patients than treating them to meet quotas and achieve bonuses. The process will be slow and full of paperwork, but it will work.

With Fee Market, sorry, Free Market heathcare, doctors will be competing with each other for patient's money, and therefore will always be upgrading and learning to try and be cutting edge. For those willing to pay through the nose, treatment will be quick, breakthroughs would probably be more often, and equipment would be state of the art. Threat of lawsuit should keep it clean and safe.

I would propose a two tier system, and yes I know there are those that would scream their heads off about how unfair this is, but guess what, life isn't fair. However, the two would have to be completely separate, like two hospitals on the opposite sides of town.
 
 
0 Rank Up Rank Down
May 7, 2009
Agree with all of the comments questioning the government's ability to provide services cheaply. At the end of the day, government agencies do not have to deal with the looming threat of bankruptcy as a punishment for inefficiency or poor quality--when was the last time you heard of a government program that was over budget and untimely being canceled? Hint, the DOD has $230B worth of them, and there's not the only agency with that problem, it's just the example I read most recently. Fannie and Freddie also recently received bailout money.

Any government insurance/health care option is going to have open access to the treasury, which will make accounting for true cost difficult and true "competition" with the private sector nonexistant--private companies don't have the luxury of Uncle Sam on demand, they have shareholders instead. Should the public health care option run out of money from traditional sources (i.e. premiums), expect Uncle Sam to come to the rescue-- no political party will stand up such a sweeping social program and allow it to fail, the political ramifications are too great. This is not a recipe for efficiency.

If the government wants to stand up a non-profit health care/insurance option that as part of the charter can never take another public dollar again (in a mystical world where such a thing could actually be honored), that might be a bit more interesting, since you would in theory be focused on delivering care without a responsibility to make money for your shareholders.
 
 
0 Rank Up Rank Down
May 7, 2009
The average bureaucracy can't manage its way out of a paper bag. Just look north to Canada if you want to see what happens when the government gets a hold of health care.
Not that many years ago we were the envy of the world for our system, and now we're the example of how to spend increasingly huge money for fewer and fewer services (and longer wait times for everything but the most critical cases).

They could probably manage to lose money running a brothel!
 
 
+3 Rank Up Rank Down
May 7, 2009
Well, here's an interesting one - US insurance overheads are something like 25% of the costs. Medicare is somewhere between 2%-6%.

Britain's NHS is less efficient, at somewhere around 5-8% but that includes administrative costs of individual hospitals as well.
 
 
+1 Rank Up Rank Down
May 7, 2009
Well, here's an interesting one - US insurance overheads are something like 25% of the costs. Medicare is somewhere between 2%-6%.

Britain's NHS is less efficient, at somewhere around 5-8% but that includes administrative costs of individual hospitals as well.
 
 
May 7, 2009
I think some people are confusing healthcare *insurance* with healthcare in general. Sure, innovation in healthcare is pretty important; more efficient procedures means cheaper bills, among other benefits from advancing healthcare techniques. But this thought experiment is focused entirely on healthcare insurance, and the racket that is the current state of the industry.

So, to respond to the 3 questions:
1) I don't know what that means, but I suspect not. Managing risk is one thing government does pretty well already.
2) Not very. More efficiency pushing papers around won't help much.
3) Hmm, lemme check. Hells yeah.
 
 
+1 Rank Up Rank Down
May 7, 2009
Some others have made this same comment, but I disagree to your premise that government has an incentive to provide service cheaply. Government is comprised of people with basically two incentives: 1) Accumulate power, 2) Get re-elected.

And one can make a strong argument that "mortgages to hobos" was a direct result of government policies and mandates.
 
 
May 7, 2009
I think the question should be; "Are the losses due to profits being skimmed off the top greater than the losses due to bureaucratic inefficiency.
 
 
May 7, 2009
Using your logic the DMV should be a streamlined machine but in a recent TV Series "Reaper" they consider it a gateway to HELL and after going to the DMV myself last week I actually agree.
 
 
May 7, 2009
I agree that healthcare deserves to be a nationalized industry, but feel that homeowner's insurance should be the first test of such a change. Here's my take on it: http://without-warning.blogspot.com/2009/01/drunk-on-socialism.html
 
 
+2 Rank Up Rank Down
May 7, 2009
My favourite quote about the government's lowest cost incentive comes from the movie Armageddon.

-You know we're sitting on four million pounds of fuel, one nuclear weapon and a thing that has 270,000 moving parts all assembled by the lowest bidder. Makes you feel kinda good.

So on the one hand this particular government built spaceship did the job and they saved the planet. On the other hand, Bruce Willis doesn't know how to not save the planet so he probably he could have done it riding a 1974 Free Spirit banana seat bicycle.

I suppose this means you can add me to your list of people without an informed opinion on the issue.
 
 
May 7, 2009
In theory there are many things that government can do better than the private sector.
But in practice, the bureaucracy and the "dilbert" principle will generally screw up everything.

Think of it like this: the government is like any large private organization. But it gets all its revenue from the taxpayers. And contrary to what you said, there is no incentive whatsoever to provide the service as cheaply as possible. And since there is no reward for improvement or efficiency, it never happens.
 
 
May 7, 2009
Another problem is that many current problems associated with the healthcare market com eback to the Government. For example, say I came up with a cure for cancer in my basement this evening. There's no possible way I can come up with the money to get that FDA approved and even if I could, you wouldn't see it fully available for 10-15 years. Since that's the case, uh, what incentive do I have again to go into cancer research?
 
 
May 7, 2009
I've worked for hospitals in various positions from clinical, clinical research, IT side research and now middle/upper administration since 1991. I think I have a fair amount of experience working with both the private sector and the government. Mostly these days I deal with CMS and CA state organizations in relationship to my hospital and the laws and rules that govern in.

If you want a preview of how the government will do with running health care, simply take a look at Medicare. If you like Medicare and think it's doing a good job, you should be for federal based health care. If you don't think they are doing a good job, you should be against federal health care system. This is actually one of those rare instances that we have a track record to gauge our support by.

Medicare already sets the price that nearly all private insurance companies request from the providers (doctors, lab, clinics and hospitals etc). They assert that since we can do it for Medicare (which is not optional, Medicare decides what it will pay for a service or item, there is no discussion with the provider on this of any merit), then that price or better can be met for them.

I say we actually have a government run health care system in CA at least already, it's just not called that. CA law requires that anyone setting foot in a CA hospital for any reason be treated without bias of any kind. This includes John Doh without ID or any type of payment. I'm unsure how this is not already universal coverage other than the lack of a preventative medicine system requirement by law... yet.
 
 
+1 Rank Up Rank Down
May 7, 2009
Government run doesn't always mean crappy. Public safety where I live is excellent. Even our ambulance service is government run. Kicks the crap out of any ems service I've seen elsewhere. It would cost less if contracted out, but wouldn't be as good. So it depends on what you mean by effiicient.

When the last time you lived in a city that had a better ambulance service than fire department? Also look at the innovations in fire equipment since you were a kid.
 
 
 
Get the new Dilbert app!
Old Dilbert Blog