TCS Daily

The Price of the Public Option

By Jon N. Hall - November 23, 2009 12:00 AM

The main concern folks have with healthcare is price.

For decades now, prices in the healthcare industry have outpaced the overall inflation rate. Healthcare takes up a larger and larger portion of the economy. While healthcare's share of GDP had very recently been a 7th, it is now a 6th and is soon to be a 5th, and there's no end in sight. So is there anything the healthcare industry could learn from enterprises that have stable prices?

One industry that regularly sees dizzying downdrafts in prices yet manages to stay in business is consumer electronics.

The price of Blu-ray players (for hi-def DVDs) has in short order come down by more than 75 percent to well under $200. When the first plasma HDTV came out, it cost more than an automobile. Pioneer priced its first 50" plasma at $25,000. Now you can find a fabulous HDTV for less than 5 percent of that. And the latest thing, the gorgeous LED, is well under 15 percent of it. So, average Joes can have theatre-quality cinema in their home for a song. And we're all moviemakers now, as the price of digital video cameras is no longer an issue. (Here's a charming example.)

The case of computers is similar: As the power, capacity, speed, reliability, etc, etc, have soared, the prices have plunged. Kids now play computer games on PCs that have more power than NASA's computer when it put a man on the moon. The personal computer has empowered the common man in ways that the richest potentates of yore couldn't even imagine. And this has only come about because of affordability, i.e. price.

So here we have this industry whose products go up and up in value but down and down in price...yet it still turns a profit. What does electronics know that healthcare doesn't?

Of course, the two industries aren't exactly analogous; one is mass-production and the other very individualized. One is very straightforward in pricing; the other is Byzantine. But consumer electronics is governed by one principle that has been absent from health insurance: Choice. Also, the consumer of electronics can choose not to buy.

When pricey products like electronics first appear on the market, consumers resist. Who needs a TV, radios are good enough? Who needs a computer if you have a calculator? But then more companies enter the fray, embarking on a relentless campaign to refine their products. Pretty soon the consumer has a dazzling array of ever better options. But even after everyone is "hooked" and would be lost without their electronics, prices continue to fall. Why? Competition.

At a recent town hall meeting, President Obama said, "Now, the only thing that I have said is that having a public option in that menu would provide competition for insurance companies to keep them honest."

But it is government that is responsible for the dearth of competition in the insurance business. That's because Congress enacted the McCarran-Ferguson Act in 1945, which allows the states to limit the number of players in their insurance markets, and explains why "in 64 percent of all metropolitan areas, a single health insurer commands a market share of at least 50 percent".

Government created the insurance monopolies in the states, thus destroying competition. Government is therefore responsible for the "dishonesty" that Obama decries.

With its business and individual mandates, Obamacare does nothing less than claim a portion of the nation's future wealth for a particular enterprise. And just like Medicare, the money will all come off the top. Since all this preempted wealth will be funneled into this one industry, the insurance companies know that one of them will get each person's business; they know they'll get paid. If you know you're going to make the sale, why lower prices? What is the incentive to offer lower prices? How does competition work in a system in which you must buy?

If there is any single thing that would lower the price of health insurance, it is repealing McCarran-Ferguson. It would create potentially a thousand times more competition than the "public option" would. And the price of repeal would be...nothing. Compare that to the trillion-dollar price tag of Obamacare

America hasn't had a real market (the free market) in health insurance since 1945. Congress has used the Constitution's Commerce Clause to justify just about everything, but won't use it for actual commerce, such as opening up the health insurance market to cross-state sales. But cross-state purchase of insurance wouldn't be enough to ensure real competition. We'd need two more things: more types of policies (including bare-bones catastrophic plans), and the right not to buy (think consumer electronics). With these three features, the consumer would be king, prices would fall, and we'd have some change we could believe in.

Have you seen any new Osborne or Kaypro computers on sale lately? No? That's because with real competition, enterprises sometimes fail. Speaker Pelosi assures us that the "public option" won't be funded with taxes (except during the startup phase, which will all be repaid). If so, the "public option" would be unlike the government's "eternal" programs (entitlements), in that it could If you believe Congress would allow something it created to fail, I have a brand new Kaypro I'd like to sell you.

The price of the "public option" is too dear. Don't buy it.

This article first appeared on American Thinker.

Jon N. Hall is a programmer/analyst from Kansas City.



Finally .
An article addressing the real problem, lack of competition.

McCarran-Ferguson Act of 1945
Why is it that this is the first I've ever heard of the McCarran-Ferguson Act? Instead, I've seen months of news coverage by all sorts of media outlets, and heard politicians on both sides of the aisle say things like "Granted, we all know that health care reform is needed...", with little discussion on why this should be taken for granted, or why it might or might not be true. The closest they ever get is saying things like "X million Americans are under insured", or "Country Y has better health care", as if these (subjective) statements of current conditions were a viable substitute for an intelligent analysis of the causes behind them.

Have I been sleeping, and watching the wrong news programs? Or have our news sources been sleeping? Does anybody (other than TCS) analyze the news, investigate the news, and report on what CAUSES the news, rather than simply forward the latest press releases from congress, etc?

great comparison
Nice article, and I totally agree, government caused the narrow choice market in insurance, and they can't or won't even recognize that fact. That alone is reason enough to toss out anything they put forward, until they demonstrate they at least have a basic understanding of what is wrong, why would anyone believe in their ability to fix it.

I would like to point out that the difference you suggest, between electronics being able to benefit from economy of scale, whereas health care is individual, is not entirely accurate. You are forgetting that a significant portion of the cost problem in the medical industry comes from the cost of medical supplies and medical devices and numerous other products and technologies, all of which not only benefit from economy of scale, but from a nearly guaranteed demand. In this sense the medical products market has an advantage over electronics, and still they can't get prices down. Why, as you say, government induced regulation driving up costs of production and entry into the market.

Phil-osophically Speaking

where is the analysis?
Repealing McCarren-Ferguson sounds like a great idea. So where is the GAO study, or CBO study or even the Cato or Husdon study on the economic impact?

For that matter, how about a proposal to ban pharma from advertising prescription-requiring medications and procedures to the general public.

I second that notion JoMaMa
I hadn't heard of McCarran-Ferguson until this article either. I knew states have the power to limit competition, but not this detail that provides the basis of that power.

I think the news outlets and politicians have failed us. Why aren't Republicans banging the Dems over the head with McCarran-Ferguson???? I'd put odds on that it has to do with money, special interests, greed.

TCS Daily Archives