Public health insurance, antitrust, and price controls

NYT:

..critics argue that with low administrative costs and no need to produce profits, a public plan will start with an unfair pricing advantage. They say that if a public plan is allowed to pay doctors and hospitals at levels comparable to Medicare’s, which are substantially below commercial insurance rates, it could set premiums so low it would quickly consume the market.

The first sentence describes the whole point of having a new non-profit plan compete with for-profit HMOs and PPOs. They're afraid of this competition, which is understandable, but cry me a river. As a general rule, private industry is supposed to be more efficient than government programs, and if they can't compete on an even playing field then they're doing something wrong.

But how even is the playing field? If the public plan were to be subsidized by taxpayers and not self-sufficient, that would obviously be uneven.

The second sentence is also of concern. Allowing any plans—be they public or private—to fix costs and underpay at low Medicare levels will amount to an effective government price control on the industry.

Private insurers are not allowed to collude and use their combined negotiating power to underpay for medical procedures because of antitrust law. But here we have the specter of a government-run public plan coming in and sidestepping antitrust regulations, with the express goal of satisfying public demand for more and cheaper care.

Such a market distortion is unfair to health providers (i.e. hospitals and clinics) who were previously competing on a freer market. In reducing compensation, it will undoubtedly reduce the quality of care, and it may also reduce availability as providing health services becomes less competitive with other industries that are not price controlled by the government.

For general information on the consequences of such price controls, see here...

Governments have been trying to set maximum or minimum prices since ancient times. The Old Testament prohibited interest on loans to fellow Israelites; medieval governments fixed the maximum price of bread; and in recent years, governments in the United States have fixed the price of gasoline, the rent on apartments in New York City, and the wage of unskilled labor, to name a few. At times, governments go beyond fixing specific prices and try to control the general level of prices, as was done in the United States during both world wars and the Korean War, and by the Nixon administration from 1971 to 1973.

The appeal of price controls is understandable. Even though they fail to protect many consumers and hurt others, controls hold out the promise of protecting groups that are particularly hard-pressed to meet price increases. Thus, the prohibition against usury—charging high interest on loans—was intended to protect someone forced to borrow out of desperation; the maximum price for bread was supposed to protect the poor, who depended on bread to survive; and rent controls were supposed to protect those who were renting when the demand for apartments exceeded the supply, and landlords were preparing to “gouge” their tenants.

Despite the frequent use of price controls, however, and despite their appeal, economists are generally opposed to them, except perhaps for very brief periods during emergencies.

[..] The study of price controls teaches important lessons about free competitive markets. By examining cases in which controls have prevented the price mechanism from working, we gain a better appreciation of its usual elegance and efficiency. This does not mean that there are no circumstances in which temporary controls may be effective. But a fair reading of economic history shows just how rare those circumstances are.

And here.

Yglesias recently wrote a post in which he dismissed opposition to price controls by Blue Dogs as not good for deficit reduction, thus "not fiscally conservative", thus incompatible with being a Blue Dog. In this he ignores that economic conservatives are against price controls for very good reasons, e.g. preserving the quality of goods you get from a free market. If all we cared about was spending less, we'd propose a socialist system like Britain's, which spends less than half the amount per capita. Obviously their quality of care isn't as good. (And what makes Canada's better than Britain's is its location).

Another point aired in the NYT piece:

Insurance industry lobbyists are skeptical that the government can fairly referee a contest between its own insurance plan and private offerings. In an era of serial federal bailouts, they aks, would the government really let its own insurance plan fail?

This is important, becaue any situation in which the government plan is not allowed to fail would be unfair competition. Private HMOs, being normal companies, are subject to failure. (Capitalism's "creative destruction".)

If we start out with a public option that is unsubsidized, but it can't meet its sobligations at competitive rates, the odds are Congress will intervene to "save" it as a public good, i.e. find some way to subsidize it.

In sum, this is why I'm against public options for healthcare and anything else: it's very difficult to set up fair competition and ensure it remains fair.

For many leftists, however, that's the point: they're uninterested in fair competition, and would prefer a single-payer system with no competition that sets prices by fiat. Their goal is to provide equal coverage for all, with scant regard for the consequences to quality of coverage and for-profit incentives of R&D that heretofore have advanced modern medicine in the U.S. very quickly compared to states with public healthcare.