Is Government Provision the Answer? (Part II)

This blog entry picks up where Part I left off. For more details, please see my book, Priceless: Curing the Healthcare Crisis.

Can Government Can Use Its Power as a Single Buyer to Suppress Providers’ Fees?

There are five problems with this.

First, we don’t buy healthcare in a national market. We buy locally. And in local markets, private entities are often as big, or bigger, than Medicare (the auto companies in Detroit, for example, or the mine workers and their employers in West Virginia). There is nothing the US government can do that a lot of private companies and unions cannot also do. Similarly, if Canada is seen as the ideal, nothing is stopping the auto companies and the UAW from creating a global budget and rationing care for autoworkers just as the Canadians do it. That they choose not to do so is telling.

Second, there are negative consequences from unduly suppressing provider fees. Doctors can leave the city, the state, or even the country. Able people can also avoid the profession altogether. If we paid doctors only the minimum wage, for example, medicine would attract only those people who can earn no more than the minimum wage doing something else. The suppression of provider payments ultimately harms patients as highly qualified providers exit the market. The effects of price controls in healthcare will be similar to their effects in other markets.

Third, the suppression of provider payments shifts costs from patients and taxpayers to providers. Shifting costs, however, is not the same thing as controlling costs. Providers are just as much a part of society as patients. Shifting costs from one group to the other makes the latter group better off and the former worse off. It does not lower the cost of healthcare for society as a whole, however.

Fourth, the argument overlooks the fact that public insurance in a democracy is ultimately subject to pressures at the ballot box. Providers get to vote, too. They also can make campaign contributions and lobby. Patients can also exert political pressure. Political competition in a democracy constrains public policy in much the same way that economic competition constrains the behavior of private firms in the marketplace.

Finally, if it really were desirable to have everyone pay low prices, we do not need to enroll everyone in Medicare to achieve that outcome. We could instead impose Medicare-type price controls on the entire healthcare system. In fact, one organization advocates that very thing. Doing so would run into all the problems listed above, however.

[Cross-posted at Psychology Today]