Health Care Math 4: Competition and Cost Reductions

Health Care Math 4: Competition and Cost Reductions


Actuarial tables apply to government insurance just the same as to private insurance.  The Government has no cost advantage. All of history screams the contrary. What Government does not have is shareholders; only taxpayers and creditors on the one hand, and unions, medical professionals, hospitals, lobbyists, etc. on the other hand, and all of the above as medical consumers on the third hand, torn between their costs and benefits.


Insurance companies are said to operate as near monopolies or price-fixing cartels. Just how do they enforce their cartel pricing? There are hundreds of small insurers who have carved out niches in the system. Are there artificially high barriers of entry to the health insurance business? Every time you hear someone complain about excess profits in any industry, ask why the complainers can’t just start their own company and undercut the excess profit seekers.  Insurance can even be provided by mutual companies, where the policy holders get all the profits. That sounds a bit like the cooperatives being proposed in Congress.  If the barriers are really too high, consider


  • Free Competition Principle:  Simplify the requirements for forming a new (mutual or not) insurance entity. If you think insurance companies are making excess profits, form your own company and compete. It can be a full fledged insurer or a buying cooperative. Just convince investors or a hundred thousand of your closest friends and you will soon discover the power of free markets. Permit policy shopping across state lines. Unions, charities and progressive non profit organizations should be encouraged to compete.



Unfortunately, the analysis in part 3 of this series shows that there is little fat to be trimmed in the private sector. Free choice is a good thing in and of itself. Local monopolies may be overcharging in some cases. However it is naïve to think that any significant savings will accrue to consumer by increasing competition in the private sector.


Unless the facts are very different from the ones cited in part 3, there is also no money to be saved simply by replacing private insurance by public insurance, whether single-payer or as an option. The idea that a politically driven price negotiator will do better than profit seeking enterprises flies in the face of logic and experience. ( Can you spell c-o-r-r-u-p-t-i-o-n?) So does the idea that insurance executives do not keep administrative costs to a minimum, constrained by the rules and regulations they must follow.


As to a single payer system, what is it about health insurance that leads anyone to believe it will be any more cost effective? One quick analogy is public funded education. Imagine if the federal government was the single payer.  Don’t you think Nancy Pelosi, Rahm Emmanuel, the leaders of teachers’ unions, and Ed School professors everywhere lie awake at night dreaming of this?  They could control the curriculum and bleed the taxpayers dry. After all, you can’t trust the local yokels to make good decisions on education any more than they can manage their own health care.


Before the current system is overhauled, with all the risk that entails, should it not be proven that money will be saved?


Interestingly, the eight White House mandates did not address the plight of the uninsured directly. Keeping people from losing insurance because of temporary economic setbacks is covered at unspecified cost.


Insuring the chronically uninsured is harder, and seems likely to add well over ten percent to health expenditures. That may sound small, but actually comes to more than a quarter of a trillion dollars a year, or over 2.5 trillion for ten years. Since all the other proposals also cause cost increases, it is hard to see how the ten year total can be held under five trillion dollars. FIVE TRILLION DOLLARS!!!  Yet the number crunchers at the CBO cringe at having to project even a single trillion dollars in cost for ten years. Would they like to guess if a marginal tax rate of 100% on income over a million dollars a year would help to close this gap? If not, then the not so rich will have to foot the bill.