The Catch-22 of government health care
There has certainly been a lot of controversy regarding the government’s latest efforts to “reform” health care. Much of it is certainly deserved, as the American public feels that there’s been a lack of transparency regarding what exactly is in the currently proposed bill. I certainly have no qualms about saying that I really have no clue about what’s being proposed now, save for two specific details. The media likes to harp on two points: whether there’s a “public option” for health care included in the proposed legislation, and how long the bill is on paper. The latter point is rather meaningless; it’s the public option that will determine whether or not this bill accomplishes anything. Friday’s Wall Street Journal reported that the Senate Finance Committee has voted in favor of a health care reform bill that does not include a public option.
I like to view politics through an economic lens. I think the government ought to take action when the benefits outweigh the costs and, when applicable, the action will better foster competition in the relevant marketplace. If there is no public option, I honestly cannot figure out what the purpose of a health care reform bill would be. Perhaps it would make a few tweaks to obscure policies and change some pointless regulations around, but it wouldn’t do what this nation’s health system desperately needs; it would not lower the cost of health insurance.
The market for health care is not particularly competitive. For example, Missouri, according to the Kaiser Family Foundation’s StateHealthFacts.org, has only 12 HMOs in the state. That’s not a lot to choose from, especially considering that health insurance companies are very localized in their operations. The providers we may be able to select from within St. Louis likely do not overlap with providers in, say, Kansas City or Springfield. This creates a monopoly-like power imbalance in the market for health care. Because the number of providers is low, the supply side of the market is uncompetitive. Companies thus have less incentive to lower the costs of their care than they would if they faced stiff competition.
We need a government health plan simply to render itself unnecessary. That’s certainly a Catch-22, but it’s true. From an economic standpoint, a government plan would drastically increase the supply of health care available to the general public. This, in turn, would drive prices down. It’s a matter of classic microeconomics. Now here’s the catch: An inexpensive or free health option would force the costs of private health insurance to drop, lest they lose customers to the government’s public option.
Whether or not one has faith in the government to provide health care that’s on par with the best private insurance options is rather irrelevant. In a cost-benefit analysis of a public health care option, the most important benefit is not what will become of the poorest of Americans. Though giving health care to the destitute is an important argument in support of a public option, the largest and most noticeable benefits will come to the middle class. With the cost of health care increasing so rapidly—usually at a rate many times that of inflation—a public option will provide the biggest benefit to those who are struggling to afford medical care by lowering the costs of insurance. This will allow the majority of Americans to get the same or better health coverage at a cost lower than what they’re currently paying. There needs to be a public option, but not for the purpose of the government insuring the public. Instead, government health insurance should exist for the seemingly paradoxical reason of negating the necessity of a public option altogether.
Richard is a junior in Business. He can be reached via e-mail at [email protected].