Saturday, August 29, 2009

Public Optiony Number 1

No private company "wants" competition. But the public should want companies to compete, because that forces them to innovate and to bring us more useful products at the least possible cost. If a company is not competitive it must improve, or go out of business. That is how competition among private companies serves the entire public. And that is why it is sound public policy to oblige companies to compete.

But it’s not sound public policy for the government to compete directly with private companies. Private companies cannot "compete" with government because government sets the rules that private companies must follow. Governments tend to “compete” by setting rules that drive its competitors out of business – and governments do not have to “improve” to do this. That leaves the entire public with a static, government standard of service rather than the constant improvements brought by competitive private companies. So in this game, the government “wins” even when providing poor service, and the public loses. Imagine the KC Royals vs. the Yankees - and all the umpires and league officials play for the Royals. Not hard to figure out that even the Royals with lesser talent, win most of the time in that game.

Besides, whether some alleged lack of competition among insurance companies is the primary reason for high medical premiums is not at all clear. If the companies are the source of high premiums, why have life insurance premiums dropped so much over the past 20 years? Answer: insurance companies are not the reason medical premiums are high. Medical premiums are high – and rising – because medical cost is high – and rising. Medical cost, not insurance companies, is the problem.

For these reasons, I think the public option promises what it cannot deliver – improvements to the insurance markets through federal "competition". And it does not get at the more fundamental reason insurance is expensive in the first place – that being the cost of medical care.
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