Saturday, November 21, 2009

Are Republicans afraid of market forces?

Here's a link to an interview with Senator John Kyl on NPR this morning (I'm lazy, you get the ugly version):

http://www.npr.org/templates/player/mediaPlayer.html?action=1&t=1&islist=false&id=120646662&m=120646647

In the interview he says the public option is step one in a two step plan to have only government insurance. OK, maybe all the Democrats are socialists or communists; but, I've got a problem with his logic. Some think tank did a study he says. It determined that within three years 119 million people would opt in to the new public insurance, 88 million of whom currently have private insurance through their employers who would switch to the public option because it's cheaper.

Just what does that tell us about the competitive nature of the insurance industry today? My quick, economically unsophisticated view is that the industry isn't very competitive. Senator Kyl is horrified by the fact that the main purpose of the public option is to provide a competitive source for insurance coverage, one that will draw people to it. He seems to assume that private insurers will just give up, "hell, they the gubmint, let's quit now." Assuming the study is valid, possibly a stretch, wouldn't the equally probable result be that the private insurance industry, paying the same providers, doctors, nurses, hospitals, drug manufacturers, would look at the margins and say "damn, they caught us, I guess the free ride is over? We're going to have to settle for a reasonable profit."

Market forces either work or they don't. Senator Kyl seems to assume that they work and doesn't want them to do so because they'll result in lower health care costs, with or without the private insurers participating. Tell me I'm wrong.

3 comments:

Kvatch said...

Market forces either work or they don't. Senator Kyl seems to assume that they work...

...especially if you're Goldman Sachs, right? I love that report they put out that cast the entire health-care debate in terms of what's best for continuing to make mounds-o-cash for them and their best clients. Kyl sounds like he's right on board with that.

The Curmudgeon said...

OK, Dave, you're wrong.

Here's the part you're missing: This has NOTHING to do with a market for insurance. Employers, like people, act in their own self-interests. Employers buy insurance for employees because it is a perk that helps obtain and retain the best employees. In union shops it may be bargained for. If government insurance exists for any and all, an employer will feel no need to pay for private insurance. So the employer will discontinue buying it. If the employer has to pay a 'fine' instead -- as some versions of the plan have it -- depending on the amount -- it may still be cheaper than paying premiums and administrative costs associated with running an employer-based plan.

The employees dropped will be counted as 'switching' or 'opting in' to government insurance but they will in reality have been pushed. It will be a cascade effect. There will be only the government program left standing. Surviving health insurers will sell 'non-covered' extras.

The Republican legislators are on their own on this one. They sure aren't shilling for Big Business here. Big Business (possibly with the exception of some insurance companies, but by no means all) wants government health care.

Dave said...

Curmudgeon, before I get to your points, I was unsuccessfully trying to be sarcastic about Senator Kyl's objection du jour to health care reform. He's one of the "throw it up against the wall and see if it sticks" opposition. I've heard Republicans argue that it will be too expensive, that it's socialistic, that the level of care will drop, that care will be cut off, and so on. (I'm not defending the Dems, they are equally guilty of promoting the their plans with inconsistant and stupid arguments.)

As to your points, big business wants anything that will reduce its costs, and that isn't necessarily bad. Hence SEP's and 401k instead of pension plans. Thirty hour a week workers rather than full time. Opposition to unions.

Assuming you and Senator Kyl are right and private insurers are driven out of business the concern becomes the quality of care. Do you think that current private insurers give a rat's ass about quality of care? Not if it costs money. While government can be bumbling and inefficient (factors that should drive up, not reduce costs) it does not have incentive to drive down quality, other than the cost of care, the same disincentive that the market has.

Thus, a push? With the bogeyman switched from big business and insurance companies to the government?