The health care insurance reform bill that failed in the U.S. Senate appears to be comatose. The prognosis for the “repeal and replace” legislation is, at best, uncertain and may depend on distant political events such as the November 2018 election.
The politics of health care insurance will probably sort itself out eventually, but the lull preceding that offers us an opportunity to look beyond the “either-or” choices of what has become a supremely divisive issue.
This is a great time to examine ideas about addressing the root problem with our health care system – it costs too much. It’s a good guess that if we could all afford decent health care insurance it wouldn’t be a divisive issue … in fact, it wouldn’t be an issue at all. Neither the current Obamacare system nor its proposed replacements really addressed medical costs. Obamacare did manage to slow down the growth rate of these costs, but the unintended side effects included demoralizing many health care providers. We are really in need of some fresh ideas.
Seema Jayachandran has a good idea. She is a professor of economics at Northwestern University and is enthusiastic about “…what happens when we add a public option to a marketplace.”
She believes that this idea could provide an improvement in our health care system by offering a government insurance option. In her view this could lower medical insurance costs for everyone.
She cites two seemingly diverse examples — India’s rural labor market and Mexico’s market for groceries. Experimental government programs that created alternative employment in one case and alternative suppliers in the other, have resulted in improvements such as higher wages and lower food costs.
The program in rural India has been in operation for 10 years, and resembles in some respects the Works Project Administration (WPA) projects that our government set up during the 1930’s Depression. Indian workers who are unemployed are offered jobs working on infrastructure projects for up to 100 days a year at a wage rate that could be equal to or even higher than the prevailing rate paid by private sector employers.
India’s system also resembles the “workfare” schemes designed in the U.S. during the welfare reform years. The half-life of most workfare programs in the U.S. though, did not permit an economic analysis of their impact on prevailing wages in the job market.
Mexico’s program cited by Professor Jayachendran is also aimed at the rural poor and is, like India’s, a welfare-based program. Instead of the “buy side” of the market as in India, though, the Mexican government is on the “sell side.”
The program is simple enough. The Mexican government loads food staples into trucks and drives to remote rural villages and gives it to poor families. One of the side of the program was that grocery stores lowered their prices, reducing the cost of food for even those who were not participants in the program.
It is not clear exactly why private sector grocers lowered their prices, though. Sellers cannot compete with “free,” no matter how much they lower their prices. Over a century ago competitors of John D. Rockefeller’s Standard Oil Company’s filling stations learned that lesson when his stations would give away gasoline free or at artificially low prices until the competitor went out of business. That business practice was declared “unfair competition” by the new anti-trust laws that were enacted to end large firms’ ability to control prices and markets.
The unfair competition argument has been raised often when government enters markets as a producer or seller. And it may become an obstacle in implementing programs modeled after the Indian or Mexican efforts.
Jayachandran’s idea of a public option health care insurance program might find it heavy going when trying to gain political support. From an economics perspective, though, option beats the heck out of coercion. It was the coercive elements of Obamacare that wrecked the health insurance markets and left the whole program in its current state.
The record of government insurance of any sort is spotty at best. We only need to look at flood insurance, Fannie Mae, and the student loan program to get an education in mismanagement and virtual reality math. Still, some government options in health care could be helpful.
Maybe the government should focus its efforts in providing services where the private sector is not present or adequate. Certainly, basic research in medicine could use a boost. And clinics and emergency transport systems for underserved rural and semi-rural populations might be a good place to start. If government programs were to “show the way” and share its experiences, systems, and financial data with the private sector, we might actually get something helpful … without rancor. Like they say, “it couldn’t hurt.”
James McCusker is a Bothell economist, educator and consultant.