Single-payer competition

Imagine your electric company jacked up your rates by 14% every year, without explanation and without giving you any choice. Imagine every time you turned on a light, a bureaucrat had to make a phone call to the electric company, and after sitting on hold for 15-30 minutes, had to ask permission for the electric current. Imagine the power company could deny the request for any obscure reason, telling you that you don't really need the illumination at the moment, that a candle would meet your needs just fine today. And if you subsequently needed light in an emergency, you had to go to an emergency light store where highly trained experts using sophisticated equipment had to screw in a light bulb for you.

That's the state of our health insurance system today. Last week our own Dr. Clark Huff illuminated a group of 30 at the monthly Highlands Ranch Democrats meeting with a briefing on how our health insurance system got to be so sick, and commented on the dire prognosis. Compared with the rest of the developed world, health care in America is twice as expensive as anywhere else. But by any measure, it is far from the best, not even in the top twenty among wealthy countries. Of the massive cost of health insurance, 30% doesn't even go to health care, but goes to advertising and administration. Compare that to 3% overhead for the Medicare system, which pays the same doctors to do the same things. Because employers are responsible for health insurance costs, our businesses are at a strong disadvantage relative to their global competitors. With health costs escalating far faster than general inflation, this disadvantage grows substantially every year.

We in America have an almost religious devotion to the free market, to the point that many people will tell you that the private sector does everything better than government or any other means. Our health insurance industry has become a sacred cow, with even Democrats afraid to resist its mighty power. Competition is indeed a valuable system when it reveals the most efficient producer of goods or services, and when it encourages added value. But for health insurance companies to compete for business from employers, they need to advertise, they need access to capital, and they need to closely monitor their costs. All of these functions cost money that doesn't go to health care, that 30% overhead. For a private insurance company to compete favorably with Medicare, it would have to reduce its overhead to Medicare's 3%, but then it would not be able to advertise and pay stock dividends and have armies of bureaucrats second-guessing doctors.

Why does the private sector fail so miserably in this case, when it works so well in most other cases? Because the health insurance industry does very little of actual value to the economy. The fact is, the industry does only one thing of value: reallocation of income. Specifically, it reallocates the income of the healthy to serve the needs of the sick. That's all it does. In that sense it's just like Social Security, which reallocates money from the young to the old; or unemployment insurance, which reallocates money from the working to the temporarily unemployed. We accept this reallocation because sickness, old age, and job loss can happen to any of us, and they all put us in a position where we can't immediately do anything about it.

Government provides the services of Social Security, Unemployment, and Medicare because it is the most efficient provider. It's an extremely simple job to move money from one place to another in a secure legal fashion. We don't expect the provider to add any value as it makes the transfer; all we want to do is minimize losses. Government is extremely good at that. The Federal government has a competitive advantage in this function because it is already well capitalized, is already expert at law enforcement, owns the Federal Reserve system, and is already widely understood as the primary source of this kind of service. It moves money the way utility companies move electricity. The private sector will never match these advantages. The exact same advantages apply to the provision of health insurance.

Single-payer health insurance is not the same as socialized medicine, and can be implemented with a great deal of private sector activity with beneficial competition. Doctors, hospitals, and drug companies will still compete in a free market, just as they do now. The Federal agency that would make the payments will hire the services of legions of private firms to carry out parts of the administrative task. This can be done through competitive bidding in the same way that the government builds roads and buys military weapons. Willing individuals would still be able to purchase medical care beyond what the government covers, just as seniors purchase Medicare supplemental insurance today.

Under a single-payer health plan, private firms would no longer carry the cost of health insurance on their books, making them instantly more competitive in the world economy. Individuals would still pay the cost of their insurance, through payroll withholding, but the huge administrative burden would be squeezed out. Private firms would use the capital thus freed up in the economy for more valuable purposes than the red tape we experience now. People moving between jobs or starting their own businesses would never have to worry about losing coverage. A huge roadblock to entrepreneurship would be removed from the economy. The rest of the world has discovered single-payer health insurance, and it's time we catch up with them.

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[pdt]

Forgot to mention, yesterday's Rocky had a good op ed on this topic. http://blogs.rockymountainnews.com/denver/speakout/2007/08/single_payer_costeffective_via.html#more