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Public-Private Competition Is Not New

This is a good point from Jacob Hacker and Rahul Rajkumar:

In many areas of American commerce, private and government programs comfortably co-exist. FHA insured loans and non-FHA loans, Social Security and private pensions, public and private universities -- all have long thrived side by side. Each side of the divide has strengths and weaknesses, but in every case the public sector is providing something the private sector cannot: A backup that's there if and when you need it; a benchmark for private providers; and a backstop to make sure costs don't spin out of control. Just as it is comforting to have Social Security in case your 401(k) evaporates or an FHA loan in case your credit score tanks, a new public plan provides an added level of protection against the vicissitudes of an unaccountable insurance market. A public plan is about competition as well as choice.

I'd put this as a rebuttal to the Underpants Gnomes Theory of socialized medicine. Contrary to the arguments of many conservatives, the existence of a public option within a competitive environment does not foretell the dominance of the government-firm, nor does it precede a legislative effort to simply nationalize the whole industry. Rather, it is what it looks like: a public entrant into the market. It might serve the same purpose as the private players, as is the case with many universities, or a slightly different purpose, as is the case with, say, the National Institute of Health's relationship to the R&D departments of pharmaceutical companies.

By Ezra Klein  |  July 1, 2009; 12:35 PM ET
Categories:  Health Reform  
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Comments

"FHA insured loans and non-FHA loans, Social Security and private pensions, public and private universities"

LOL. Basically everything in the economy which actually gets more expensive in real terms. Go figure.

Posted by: whoisjohngaltcom | July 1, 2009 12:45 PM | Report abuse

This is irrelevant. Social Security doesn't compete to try to convince people to shift their money out of their 401(k). FHA loans don't compete with the loan market in general; they're available only if certain narrow eligibility requirements are met.

Posted by: tomtildrum | July 1, 2009 12:46 PM | Report abuse

Just say no to health care reform!

Posted by: obrier2 | July 1, 2009 1:02 PM | Report abuse

Comparing the public option with FHA loans? Really? So it's gonna be geared to the people who cannot afford the real deal, huh? How different will it be from Medicaid?

I am rapidly losing all hope that health care reform will be done in a way that resembles anything like real reform.

Posted by: anne3 | July 1, 2009 1:44 PM | Report abuse

Those comparisons are laughable! Just for starters -- public universities don't force all professors in the US to teach their students (as the public plan may force providers to accept its members), the real return on Social security is negative for many Americans (hardly comparable with the private sector).

Perhaps a better comparison is Amtrak vs. private sector transportation options or gov't owned airlines in many countries vs privately owned airlines. We will soon have a new example in gov't owned auto companies. I submit that none of these businesses is well-run by the gov't. Why should we think a health plan will be.

And Ezra, i'd be interested to see your take on why so many state Governors and legislatures are moving to outsource the administration of their Medicaid plans to the private sector. These have been laboratories for gov't run health plans and they have not worked at controlling costs or delivering good care. Why will the public plan be different? simply because it's bigger??


If public universities treated their faculty the same way that the public plan will treat providers we'd have a lot of very unhappy professors.

To say that government backed loans and social security have "thrived" is ridiculous. How many billions have the US taxpayers funneled to Fannie and Freddie and what does the financial condition of social security look like?

Posted by: mbp3 | July 1, 2009 2:18 PM | Report abuse

"what does the financial condition of social security look like?"

Actually the financial situation of SS is great with a huge yearly surplus and a giant trust fund.

Only if you believe those doomsday projections of the SSA which have been consistenly wrong in the past would you worry. Rather than use these projections as predictions, you would be better off getting a good shaman with a knife and a goat.

Posted by: lensch | July 1, 2009 2:50 PM | Report abuse

If a public plan were available, why wouldn't private insurance products evolve toward add ons to a basic public plan, rather than as complete insurance packages that are parallel to the public plan?

Posted by: bdballard | July 1, 2009 2:57 PM | Report abuse

lensch:
"Actually the financial situation of SS is great with a huge yearly surplus and a giant trust fund."

LOL. Social Security holds bonds for trillions of dollars -- IOUs -- for cash that was siphoned off to buy votes in the general budget.

It's only a giant trust fund if you think your kids are ever going to pay it back. Of course, it's possible you don't really care about your kids.

As for my kids, I'm hoping that when ballooning retirement rolls meet up with the reality of a raided trust fund, the kids will take enough of an interest in the Social Security to finally shut it down.

That money will NEVER be paid back; it's just a matter of when and how Congress eventually will decide to end the Ponzi scheme.

Is that your definition of "great"?

Posted by: whoisjohngaltcom | July 1, 2009 3:31 PM | Report abuse

Well, you may not have faith in the credit of the US, but let's hope the rest of the world does. Furthermore it's not even clear we will need all those bonds.

BTW 16 times in the past the SSA has cashed in some of the bonds with no difficulty.

Also if I gave you $1.5 TRILLION and ask you to hold it for the American people, what would you do with it? Put it in your mattress? Buy Enron stock?

Posted by: lensch | July 1, 2009 3:41 PM | Report abuse

While the existence of some variants of the public plan may not foretell dominance by the government, the point that Ed Morrisey and other conservatives have made is that the public plan strategy was specifically designed as a politically viable way to move the country in the direction of the single-payer model.

Not only does Ezra know this, he is among those who have openly admitted this. On more than one occasion.

And while I'm sure that Ezra believes that the type of "weak" public plan likely to pass in Congress is unlikely to threaten private insurers, liberals now have a serious credibility problem on this issue. If you start with a blatantly disingenuous strategy designed to hide your real agenda, it's going to be difficult to get people to believe that a watered down version of the same strategy is harmless and well-intended.

Single payer advocates have been making this observation for months, and I think they are right. If healthcare reform blows up, or even if just the public plan goes down in flames, those most to blame will be the dishonest proponents of the public plan strategy.

Posted by: morgen-vs | July 1, 2009 3:42 PM | Report abuse

"Well, you may not have faith in the credit of the US"

Because it's somehow patriotic to be comforted by the knowledge that the government will tax your children when it needs money to pay for your retirement?

"BTW 16 times in the past the SSA has cashed in some of the bonds with no difficulty."

Um, baby boom, anyone? You know, the people who are all going to be retiring over the next twenty years are all alive now, as are all the people who will be paying into Social Security. We're not talking about a transient recession with unexpected revenue shortfalls for a year or two. It's pretty basic math -- prolonged, deep shortfalls are already in the pipeline.

"it's not even clear we will need all those bonds."

Social Security will not have to cash all of them to spark a revolt. It will be over long before then. There is no way -- no way in hell -- those bonds will ever be paid back. Social Security will have to be changed. Or it will bankrupt the country.

Posted by: whoisjohngaltcom | July 1, 2009 4:01 PM | Report abuse

"Comparing the public option with FHA loans? Really?"

Yeah. The backstop to unaffordable housing in the rest of the developed world isn't the FHA loan but a decent, substantial, non-ghettoized public housing system backed up by a well-regulated private rental market.

Posted by: pseudonymousinnc | July 1, 2009 4:02 PM | Report abuse

Again, all successful universal healthcare systems either offer a monopoly government insurer for basic health care (not all health care, conservative hacks) OR they regulate the basic health care package delivered by all insurers to contain certain features and cost advantages. Either way there is either no competition or there is a form of competition in offering the SAME THING perhaps with other added benefits.

Posted by: michaelterra | July 1, 2009 4:13 PM | Report abuse

By "cost advantages" I mean that it is essentially affordable by everybody...either because the basic premium is so low, the poor may be subsidized, as well as the whole package may be subsidized via taxes.

Posted by: michaelterra | July 1, 2009 4:15 PM | Report abuse

Public libraries haven't exactly put Amazon out of business. Despite police departments we see a huge expansion of private security firms. We have both an Army and Blackwater.

In the real world private and public functions work side by side and thrive.

Posted by: Chucksideas | July 1, 2009 4:22 PM | Report abuse

"It's pretty basic math -- prolonged, deep shortfalls are already in the pipeline."

Well, I have a BS from MIT & a Ph.D. from Columbia and I can tell you that you don't have the vaguest idea what you're talking about.

Here's a simple argument that you may understand.

Doom sayers say, "In 1945, for every Social Security beneficiary, we had 42 workers paying in. By 2002, we had just 3.3 workers per beneficiary. By 2030, we'll have only 2.2 workers per beneficiary." So what. I presume they somehow want us to conclude that Social Security is going to pot just by looking at this one statistic, i.e. this single statistic (workers per beneficiary) dominates all other inputs. Since they do not tell us the state of Social Security at any point, we actually can conclude nothing from this argument, and if we put in its current state, this argument shows exactly the opposite of what they want us to conclude!

Today Social Security is in the best state it has ever been in—the yearly surplus in 2007 was the largest in its history. The SS Trust Fund is $1.5 TRILLION which is also its maximum. I don't have the figures for 2008, but they are similar. So what we have is that from 1945 to 2007, the number of workers per beneficiary decreased by 92%, but the health of Social Security is vastly better. Clearly there are other factors that dominate this one demographic statistic. Furthermore, if Social Security could improve its condition with a 92% decrease in this statistic, why should we worry about the 33% decrease they predict for the period 2002 to 2030?

Posted by: lensch | July 1, 2009 4:53 PM | Report abuse

""FHA insured loans and non-FHA loans, Social Security and private pensions, public and private universities"

LOL. Basically everything in the economy which actually gets more expensive in real terms. Go figure."

Ya the government doesn't typically need to get involved in cheap things easily managed by the free market. Common sense, no? Again, a conservative confuses cause and effect.

Posted by: jeffreyvest | July 1, 2009 6:10 PM | Report abuse

So many fallacies. Hard to know where to start. I'll just pick off a paragraph for fun.

"public universities don't force all professors in the US to teach their students (as the public plan may force providers to accept its members), the real return on Social security is negative for many Americans (hardly comparable with the private sector)"

- You think that currently doctors get to pick and choose, but under a public option, suddenly they wouldn't. Neither side of that argument makes any sense or reflects reality. Many states have near monopolies in them where you better take the insurance or you won't practice. And how about employees forced to take whatever insurance their employer offers?

- Yes, conservatives, taxes are a negative when you pay them. They aren't stealing, they're a duty and honor owed to your country. But yes they are resources out of your pocket to help someone who needs them. Perhaps one day you'll need those resources too then it won't be the personal net negative you thought it was. It's mind boggling to me that anyone who espouses the basic "virtue" of "screw everybody else as long as I don't have to give up anything" is taken even slightly seriously in a modern society.

Posted by: jeffreyvest | July 1, 2009 6:22 PM | Report abuse

LOL. A BS from MIT and a Ph.D. from Columbia and you are still stupid enough to measure the health of Social Security by the balance of the IOUs in the lockbox?

"(workers per beneficiary) dominates all other inputs."

Of course it does. Because the function of Social Security is to mail checks to beneficiaries, which it funds SOLELY with money taken from workers. That is Social Security's ONLY mode of operation. Lockbox or not. Bonds or not. Even if there were a hundred trillion dollars worth of bonds.

Any assessment of Social Security's "health" based upon the balance in the "lockbox" is an accounting trick. Whether you as an individual are foolish enough to fall for the trick or whether you are devious enough to be in on it is irrelevant.

Unless something changes, your "healthy" Social Security will soon demand that each worker provide for nearly half of another person's entire benefit. As I said, both the beneficiaries and the recipients for the next two decades are already alive today. It's not like this is sneaking up on us -- we know who they all are and how many there are. And it's not like you can backfill the pipeline with new babies.

Whatever portion of the benefit is not provided by payroll tax contributions will simply be taxed as regular income to cover the value of the bonds. That money does not exist -- it can only be taken from current workers.

You're now haggling over whether it comes out of their payroll tax or their income tax -- utter nonsense. That makes no difference.

It's both foolish and intellectually dishonest to suggest that the mechanism of the lockbox changes this imbalance between workers and beneficiaries in any way, unless you are insane enough to believe that the general budget will redeem the bonds by simply cutting its other programs. And NOBODY expects the government to do that. Not even YOU.

Posted by: whoisjohngaltcom | July 1, 2009 6:47 PM | Report abuse

jeffreyvest:
"[Taxes] aren't stealing, they're a duty and honor owed to your country. But yes they are resources out of your pocket to help someone who needs them."

Actually, they are to fund government. You libs added the rest of that nonsense.

And that "general welfare" nonsense? That verbiage was put into a document that prohibited direct taxation of citizens. Try to remember that. Associating it with redistribution is pure misinterpretation.

But you're right about one thing -- it is increasingly likely for anyone to be free in a modern society. Oh wait -- there's nothing modern about that, is there?

Why don't you just come out and say that fad, of liberty and what-not, has passed? Isn't that what you really mean?

Posted by: whoisjohngaltcom | July 1, 2009 6:57 PM | Report abuse

jeffreyvest:
"Ya the government doesn't typically need to get involved in cheap things easily managed by the free market. Common sense, no? Again, a conservative confuses cause and effect."

Well, that's interesting. Because if you asked me to do something about a social concern that something is "too expensive," I'd focus on making it cheaper instead of just giving people money to compensate. And it seems to me that the benchmark of successful government would be that the commodity in question would stop getting more expensive.

Now, who really sounds more like common sense -- you or me?

Again, a liberal confuses a government failure for a success.

Posted by: whoisjohngaltcom | July 1, 2009 7:28 PM | Report abuse

I give up. You're hopeless. I'll just point out that how much SS collects depends on the income of workers and the tax rate as well as how many there are.

Posted by: lensch | July 1, 2009 8:10 PM | Report abuse

I'm hopeless? This, from a guy who sees proof of Social Security's health in what is basically a guarantee to tax incomes if payroll taxes don't generate enough?

That's rich. Well, not literally, huh?

Posted by: whoisjohngaltcom | July 1, 2009 9:51 PM | Report abuse

O.K. I said I wouldn't do this, but I'll try one more time. Listen carefully. Forget about the future. Forget about the Trust Fund. Still with me? The statistic (workers per beneficiary) you claim dominates all other factors has decreased 92% since 1945. Right now, today, SS is paying all benefits and has a huge yearly surplus. How is this possible if this statistic has decreased so much?

Can you follow this simple argument?

Posted by: lensch | July 1, 2009 10:02 PM | Report abuse

You honestly believe that since Social Security has a green light to go in and tax up to $1.5T of income -- from a base of 2.2 workers per retiree, and on top of payroll taxes -- that the system is therefore sound? You equate a law that permits it to tax people when the demographics start to fail -- you think that's responsible planning?

You really don't think there'll be a problem when income taxes have to start going up to make up for the mathematically inevitable shortfall? You plan on raising people's taxes simply because their outnumbered by their parents? And you're perfectly okay with this??? You think they're going to be okay with this???

"Sorry kids, we overpaid your grandparents' retirement. So we spent the money on an overpass, but we did the responsible thing and put an IOU in the piggy bank. And since there are so many of us and we didn't have that many kids, we're now going to have to raise your income taxes so you can pay us back the money we never saved."

You're really okay with this sort of absurdity? With a degree from MIT and a Columbia doctorate? This is really all perfectly fine with you, huh?

Posted by: whoisjohngaltcom | July 1, 2009 10:16 PM | Report abuse

O.K. You've proved it. You can't follow a simple argument.

Posted by: lensch | July 1, 2009 10:47 PM | Report abuse

O.K. You've proved it. You can't follow a simple argument.

Posted by: lensch | July 1, 2009 10:48 PM | Report abuse

Private healthcare is pretty cheap in the UK. I think it might because there are some other guys giving it away for free. I don't know if that would apply to another country though, at least not unless your demand curves slope down to the right as well.

Posted by: albamus | July 2, 2009 9:05 AM | Report abuse

BTW, lensch, I do understand your point.

You reason that this is all okay if the 2.2 workers can actually afford to make the transfer payments without a tax revolt. Maybe so, in the case of the lockbox, but almost ridiculously unlikely in the case of the total unfunded liability. Something will have to change eventually.

And even so, your argument is extremely "needs and abilities," and that is still a staggering amount of money pull from personal incomes over twenty years.

Also, in addition to counting the worker/benefit ratio, you wanted me to also consider incomes and number of workers. Well, technically, doesn't the ratio already consider the number of workers?

Your strategy is that a lower number of workers can sustain the system if we require beneficiaries to accept a lower percentage of workers' earnings. Or, if by targeting workers who make above the cap, we raise their contributions (higher payroll taxes). In any case, I fail to see the free lunch. A generation gets screwed for having too many parents.

Posted by: whoisjohngaltcom | July 2, 2009 9:24 AM | Report abuse

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