THOUGHTS ON THE PUBLIC OPTION

One of the core suggestions for fixing health care is the start up of a “public option” health care plan to “compete” with the private insurers. Compete is in quotes because this competition would not be fair competition. This public option would certainly enjoy subsidies, possibly just implicit at first but likely explicit tax dollars later, and this would likely eventually cause the private insurers to be crowded out of the market and the “public option” would in effect become the only option and we would have arrived at a single payer system like most other countries in the world have. The “public option”, as the only competitor left standing, would have monopsony bargaining power with health care suppliers, i.e. it would essentially dictate the price it is willing to pay and health care providers would simply be forced to accept that price if they wanted to supply their product.

While this might on the surface seem like a good thing and would hold down health care costs, consider what basic supply and demand implies about this price setting. Again, we can simply find the point on the supply curve where this dictated price falls and there will be a corresponding willing supply level at this price point on the supply curve. This willing supply level will almost certainly be much lower than the value demanded (i.e. maximum demand since everyone must be covered). While in the short term the willing (grudgingly willing more like it) supply will be higher (since health care providers will simply have to take what they can get in the short term), in the long term equilibrium the supply will be lower and will most likely not match demand (i.e. some or many of the health care providers will redeploy their time and resources into more rewarding endeavors and industries).

The end result of this will be unavoidable forced rationing of health care, i.e. the willing supply is not enough to meet the maximal demand and many consumers will effectively not be able to consume (since the supply isn’t there) or will have to wait a long time to consume. Is this really a better outcome than if we simply let the market run its normal course? I.e. in both situations some consumers will effectively be shut out of the market with the only difference being that in the true free market system price will dictate who goes without while in the universal health care model this decision will be arbitrary or random (dictated by health care bureaucrats in government, for example). Maybe some would argue that in the former system it is the more well-to-do who will receive the service/product and the poor shut out and this is unfair, but so what, and why should we regard any one group as more deserving? And the health care quality level under the former system will be much higher, which will benefit everyone. Thus, unfortunately, there is no free lunch. You get what you pay for, and if you are not willing to pay the true free market price then you will get shortchanged (shoddy, postponed, and/or no care).

Note also that this supply-demand argument-based result about dictated costs causing lower supply (and thus rationing) is borne out in practice by the socialized medicine countries; it is well known that wait times are so long in Canada, for example. For example, see this article describing how extremely long it can take to find a primary care doctor in Canada. And, in fact, we already DO have this problem in the United States with our current “public option”, i.e. medicare for seniors. So this result is borne out in practice.