NYT article: Medicare operating cost much lower than private ins. but it's not an "apt comparison"

[ProSense]

A Public Option Isn’t a Curse, or a Cure

By RICHARD THALER
Published: August 15, 2009

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Here is a thought experiment: Can you think of a domain where a government-run business competes successfully with private-sector companies? In a town hall meeting last week, President Obama mentioned one such example: the market for overnight shipments. This market now has two main private suppliers, FedEx and UPS, and one public one, the United States Postal Service. When you have to send something overnight, which one do you use? Most shippers choose one of the private companies. (Indeed, even the idea that we need a government-run postal service is doubtful. Sweden has successfully privatized its postal service. Sweden! And the European Union will open mail service to competition in 2011.)

The Postal Service offers another instructive lesson. When it periodically starts running deficits (as it is now) and proposes cost-saving measures like eliminating Saturday delivery or closing tiny post offices, Congress often intervenes under pressure from predictable interest groups like bulk mailers, the 600,000 postal employees, and the users of those tiny offices.

More generally, it is hard to find examples where government-run businesses compete with private companies and win. One reason is that governments are not very good at innovation. As the great 19th-century economist Alfred Marshall wrote, “A government could print a good edition of Shakespeare’s works, but it could not get them written.”

But what about the often-stated fact that Medicare has much lower operating costs than private insurance companies? Won’t this allow the public option to compete successfully? As Victor Fuchs, the dean of American health economists, recently argued in The New England Journal of Medicine, this is not an apt comparison because the new public plan would have marketing and other administrative costs that don’t apply to Medicare with its captive market.

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(emphasis added)

First, he thinks the public option is only about efficiency? How efficient are health insurance company profits?

Second, the post office? When the post office begins charging $15 to deliver mail, let's talk.

Third, Medicare is not an apt comparison because it "would have marketing and other administrative costs"? Does he anticipate that Medicare will follow the health insurance industry's lead and spend nearly $200 million over a few weeks selling lies?

[stray cat]

1. I read it - a good artcle for people who want to think and not just react

on the right or the left.

[ProSense]

2. Yeah, and buy into the notion that

More generally, it is hard to find examples where government-run businesses compete with private companies and win. One reason is that governments are not very good at innovation. As the great 19th-century economist Alfred Marshall wrote, “A government could print a good edition of Shakespeare’s works, but it could not get them written.”

Why do you think that is? This is a false notion. There are reasons that a lot of entities are government run. Private enterprise would be unable to operate them efficiently.

[ProSense]

3. This statement is relevant

Many argue that the private sector is more entrepreneurial and innovative than the public sector. Commercial enterprises—responding to market pressures and the need to stay competitive—incorporate new technologies into their operations as a way to boost efficiency and productivity. In contrast, government agencies don’t have customers in the traditional sense and aren’t required to show a profit on their revenues. Most public departments have multiple constituents, such as voters, taxpayers, legislators, administrators, the media, advocacy organizations, and nonprofit organizations. Still, to understand the real factors facilitating technology innovation and advancing entrepreneurship, systematic data evaluating innovation in business and government is needed.

The following paper evaluates the websites of leading U.S. corporations with state and national governments, grades their overall performance, and examines nearly two dozen features of digital innovation, including: personalization, interactivity, transparency, PDA access, disability access, language translation, number of online services, privacy, security, and user feedback. We found that many government websites lacked multimedia, interactivity, and personalization—key features that allow users to tailor information to their own needs. On the other hand, public sector agencies were more effective at providing disability access than commercial enterprises. When it came to privacy policies, public sector websites also offered stronger consumer protections than commercial sites.

Also included in this paper are interviews with key leaders from companies that have implemented successful strategies for developing and maintaining first-rate websites. We draw on their experiences to determine the keys to successful innovation.

link

That's the key difference between the public and private sector, and government run health care is needed.

[jody]

4. But the public option is only about efficiency! The claim is a public option will cost less than

private options.

The comparison between public and private options must give each the same control over the source of health-care resources and health-care consumers otherwise a public option with access to laws may give it a competitive advantage relative to private options.

[ProSense]

5. Wrong.

It's about providing coverage to the uninsured and competing against the private insurance companies by providing quality care. The insurance companies want to frame this as being about the cost of the public plan. Well it's about money to the extent that it will pit a government run health plan against private insurance profits.

[jody]

6. Sorry, do you think the "public option" would have any support if it cost 10 times that of "private

options" for the same quality of service?

"Public option" is about efficiency regardless of your protests.

As I pointed out above, the question remains to be proven whether a "public option" operated like a private business under the same limitations as a private business can compete against "private options" and do so more efficiently and effectively?

IMO it may be possible for a "public option" v. "private option" competition to yield a "public option" winner and I'm willing to try but I see no evidence to conclude a priori that will be the case.

[ProSense]

8. The public option is going to cost money up front. The efficiency argument is a strawman

It will be competing with private insurance and negotiating based on Medicare.

[jody]

9. Decades of govt contracting have shown the efficacy of concentrating on three major criteria;

cost, schedule, and performance.

Cost is the price the government pays for a given product or service,

Schedule is the delivery of a product or service at a designated time, sometimes referred to as "due date"

Performance is the quality of a product or service.

A good primer for those concepts is the Federal Acquisition Regulations.

IMO it's highly unlikely that any contract between a "public option" and providers of health-care resources will use criteria in contracts that do not include cost, schedule, and performance or other words describing them.

Of the three, explanations of a "public option" I've read, all stress reducing cost while assuming equal or better performance (quality) and that delivery will at least be equal between competing options.

Of course the "public option" will cover more people but competition between "public v. private" will still be judged by cost, schedule, performance.

If you disagree, please explain what other criteria you believe will be used.

[Eric J in MN]

7. If the premiums are much lower than private insurance...

...then it won't need much marketing. Word will get around.

Paying doctors Medicare rates is key to making the premiums lower.

[jody]

10. "Paying doctors Medicare rates" has significantly reduced the number of Internal Medicine and

Family Practice physicians.

Given your "key to making the premiums lower" IMO will reduce their numbers still more.

[Eric J in MN]

11. Medical schools don't lack for applicants. NT

NT

[jody]

12. I did not say that, I spoke about the growing shortage of Internal Medicine/Family Practice doctors.