Wednesday, September 30, 2009

No Public Option for Healthcare Insurance!!

It's been fun watching the healthcare reform circus as the months have rolled by. It's also been disappointing. I view the notion that the government can "compete" with private companies in any market as preposterous. Ridiculous. Nonsense.

Government "competition" with private industry is not within the definition of a free market, and therefore a free-market optimum result or equilibrium cannot be attained. However the public-option proponents imagine things will play out, I can guarantee it won't happen that way. That's because they are basically hoping for an outcome that contradicts human nature, and the fundamental mathematics of markets and incentives systems. To me it looks as ridiculous as expecting water to run uphill.

We can refer to my earlier post about market regulation and the ice rink analogy. As applied here, medical insurance companies are the skaters and the government is the rink owner. The goverment can define the playing surface in a proper, free market, but it can't "compete", by definition. That's because if the rink owner plays, it will always win. It controls the game.

Or imagine a football game where one team includes the referees and the stadium owner, and millions of dollars are at stake. Oh, and the refs can change the rules anytime during the game. Who will win? I'll bet on the team with the refs. Do you want to take the other side of the bet?

In the medical insurance market, the government specifies the market parameters, has infinite resources, is subject to massive political incentives from the electorate (who are also insurance customers) and has the power to tax all of the other insurance companies. Again I ask "who will win?"

At the very best, as an outlier case one could imagine the federal government running its public option as a wise, benevolent despot. That is, it would undermine the private insurance options just enough to squeeze profits a little and force increases in efficiencies, and then stop. In this scenario it would be self-limiting, and forbear on many actions it could take. This won't happen. Please take an honest and critical look at any other program the government has undertaken. The contitutional limits on government exist for reasons based in experience and wisdom.


David R. Larson said...


My thanks to you for a great walk and conversation with you and Jerry tonight!

This is a beautiful blog. Congratulations!

I like the ice rink analogy; however, I do think that its owner could skate on it too providing that he or she abides by the same rules as everyone else.

I'll have to read your earlier posts on the health care debate in this country. This is a very interesting topic and I'm glad you are discussing it.

Here is the site I mentioned:

Here are my blogs:


David R. Larson said...

Please make that


johnnybregar said...

Hi Brian,

Johnny Bregar here - hope all's well.

I am on the fence re: the public option. But I will ask you the following questions:

If the free market is the solution, then why do most people agree that reform is needed in the first place (including doctors, government and us)? Why has the free market failed to provide health care options for all?

Other government programs largely viewed as successes (note that many of these are service-based programs):

2. DOT (I know you hate the WSDOT, but we do have roads.... and not all of them lead to the front doors of the people who built them....)
3. Rural Electrification (historical)
4. FEMA - look at it now, not 10 years ago....
5. Human Genome Project
6. The Internet (created largely by NSF)
7. NSF
8. The Fed? Could the private sector really do this?
9. FAA - arguable, but imagine our safety left in the hands of the free market.... money vs. safety expenditures... hmmm...
10. National Parks

The list goes on. I think it's quite possible that a public option for health care could go on this list. Not sure - but it seems like a likely candidate to me.

Hopefully this gives you some fuel for a fun response. :-)



Old_Eyes said...

It's great to hear from my friend Johnny Bregar!

But first I'll say Hi to David Larson. It was a great walk indeed. I've only had a chance to read parts of the Adam Smith blog. I have more to read. I've already learned more about Adam Smith, based on what you said. You probably couldn't see me grinning in the dark as you gave me the site, knowing the title of my blog!

I think in your comment above, "providing" is the pivotal word. The discipline for the government to play by the same rules as everyone else would have to come from an as-yet unknown source. We could suppose the government's behavior could be constrained by fiat, but that would have to be a prescient, detailed, and almost beautiful set of laws indeed.

In a company competing in a free market, that discipline comes from forces inherent in a free market. I think that's the key point that many people miss. And missing that, it is a further leap to understand that market discipline results in the optimum resource allocation, highest wealth, and highest overall utility for a society.

I've used this phrase several times in explaining the actions of companies at various times: "the competition made them do it."

Sergey Malgin said...

Hi Brian.
I think 'public option' is an overhead. However, 'insurance exchanges' are good idea, given that they will allow interstate players to participate. More sellers => more competition.

On other things I have no opinion (no way I am not reading 2000-page bill!)

Old_Eyes said...

That's right Sergey! Thanks for commenting! I'm not ploughing through the big House bill either. One summary I read said it had exchanges in it, and a couple of other ideas I've covered here.

We'll see what the Senate cobbles together .

Old_Eyes said...

I still owe Johnny come commentary. We've had some family over for a lengthy visit, and other festivities keepin' me busy!

Sergey Malgin said...


I think healthcare reform is just a smokescreen - or a small pillow in preparation of a big fall.

What do you think of this?