Health Care

Crowding out the Market

Public-plan proponents have feigned ignorance of how such an option would crowd out the public market.  The answer is simple: a public plan would be a political, not a market, entity.  Its justification is premised on a belief that the insurance market is not competitive and that insurers price oligopolistically, retaining excessive profits.  Even if this were true, the public plan would have no way of knowing when it had priced away its more efficient market competitors’ oligopolistic profits.  It would not know that it had destroyed these “inefficient” profits until it had lowered its premium prices to a level too low for private insurers to match.  Or, as a flowchart:

public-flowchart

It is inevitable that the government will stack the deck in favor of its own offering.  Even if it is not openly subsidized, the public plan will almost certainly be able to outsource expensive administrative duties to government bureaucracies with their own operating budgets.  It will likely have powers to impose its prices on providers that its private competitors will not.  And it is absurd to think that the government would simply allow its plan to disappear if it failed to operate within its budget.  The public plan’s political structure and mandate to drive down prices blindly guarantees that a bailout will be needed sooner rather than later.

2 Comments

  • drmrforman

    This only represents the cost side of the equation. Any health care plan positioning itself to compete only as to price cannot gain the whole market because quality is another parameter that consumers evaluate. Short of nationalizing the whole medical delivery system, there will continue to be quality-based, more expensive options as well as supplemental plans which the majority of Medicare enrollees buy.

    And since those with less money or more illness would likely price themselves into a public insurance program, the pool remaining for the secondary market gets a shot at a reasonable cost.

    Let us hope that Americans continue to hold the privilege of voting with their own money to sustain high quality reasonably available health care.

  • wallaceforman

    There is nothing that would prevent the public insurer from competing in quality also. They can offer “Gold, Silver, and Bronze” plans with varying levels of comprehensiveness, and can undercut relatively similar plans as described above.

    Also, I don’t think there is any reason to think that the sick must disproportionately price themselves into the public offering. If it offers the same benefits as a given plan at a lower cost, it will be attractive to both the sick and healthy members of that plan.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.