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Touching the Stove

It's a pretty good thing that touching hot things causes us sharp and relatively immediate pain. It means the incentives to avoid touching hot things are well-aligned. That's less true with health-care reform (and much less true with global warming). So much as families feel a bit burdened by health-care costs now, they're actually protected from the bulk of the system's spending: they think employers foot the bill, or the government does. In fact, they do, through lost wages, and they do again, through higher taxes. As health economist Jon Gruber explains, this makes the politics of health-care reform rather tricky: you're trying to solve a problem that's much worse than people realize, and so the real solutions are more painful than they're willing to accept. The incentives are misaligned.

Unless consumers face a financial penalty from their choices that drive health care upward, supply-side reforms will fail.

We already have an excellent example of this problem: the reaction to managed care in the late 1990s. Managed care in its strongest form was in fact successful in lowering the growth rate of medical costs; employer-sponsored insurance premiums rose by just 2 percent per year or less from 1995 through 1997.

Yet the managed care “revolution’’ ended in its infancy because of a public backlash. Consumers perceived that they were being excessively restricted in their choice of provider and denied care too frequently by care managers. In fact, there is little evidence to support this perception. The ample literature on managed care has not provided any consistent evidence that it leads to lower-quality care or outcomes. Yet the abandonment of effective care management is partly why employer insurance premiums rose at double-digit rates again in the early 2000s.

But what if consumers weren’t so insulated from the financial consequences of their health insurance choices? The typical employee pays only a small fraction of the full costs of employer-sponsored insurance and has no idea what the total costs are. Moreover, the premiums that all employers and most employees pay are exempted from both income and payroll taxation, unlike wages. This shields firms and employees from reaping the financial benefits of lowering insurance costs.

Suppose a company offers its employees a new plan that is $1,000 cheaper, and offers to pass the savings on to employees in the form of $1,000 in higher wages. The problem is that the $1,000 in higher wages would be taxed, while the more expensive insurance they now hold is not. So for the employee, the relevant savings is not $1,000 in higher wages, but $600 in after-tax wages. Many employees won’t make that trade-off.

I would like to go a lot further. I would like to see the tax preferences eliminated, and I would like to see every worker get the money their employer pays for their health care put back into their wages. Then I would like them to purchase health insurance on their own, so they see the full cost of it, and can decide whether they're willing to support more radical efforts to bring those costs down, or whether they're willing to accept more care management in order to save some money. This is, basically, how the Wyden-Bennett bill works, and it's why it's such a gamechanger. It's also why it has so little legislative support: It tries to solve the full problem when people only feel a small fraction of the problem.

By Ezra Klein  |  September 4, 2009; 6:05 PM ET
Categories:  Health Economics  
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Comments

I know how much my employer pays and it is a lot. I want that money to buy on the exchange that includes the public option, preferably medicare for all. Won't having more young healthy people in the system make medicare more sound?

Posted by: srw3 | September 4, 2009 6:53 PM | Report abuse

I'm really not sure that "make people feel pain directly" is a politically viable health care reform strategy. I never thought to myself, "gee. I wish my employer wasn't paying for my health coverage plan."

I'm more concerned about what happens if my employer can't/won't pay for my health plan or how I manage things when I'm self-employed. Why not simply keep the deduction in place for those who want to buy insurance on the individual market?

Posted by: constans | September 4, 2009 7:28 PM | Report abuse

So in other words, you are for giving people the money and having a significant percentage of people not buy health insurance at all?

Posted by: wovenstrap | September 4, 2009 7:42 PM | Report abuse

"Won't having more young healthy people in the system make medicare more sound?"

No.

Next question

Posted by: ab13 | September 4, 2009 7:50 PM | Report abuse

Ezra,

Ultimately what you're saying here is, the American people are not feeling enough pain about health insurance, so let's screw them over some more and them maybe they'll have the will to enact real reform.

Bad idea.

There are those of us who literally cannot buy individual plans at any price. We've been there, we've tried. As a healthy 25 year old you haven't had experience with this, but those of us a little older & with pre-existing conditions have. It sucks.

Posted by: Sprezzatura | September 4, 2009 7:52 PM | Report abuse

If we're going to talk about ideas that are political non-starters, how about single payer? How about Ezekiel Emanuel's VAT tax plan?

Cost control is best achieved on a national level, because cost control on the individual level doesn't work. Under the Wyden plan, providers will discreetly, even subconsciously, shift costs to patients who are better insured. Subsidies will affect people unequally. The public will be confused, skimp on preventive care, and a whole new industry will crop up on how to game the system.

Posted by: bmull | September 4, 2009 8:14 PM | Report abuse

"I would like to see the tax preferences eliminated, and I would like to see every worker get the money their employer pays for their health care put back into their wages. Then I would like them to purchase health insurance on their own".

You were going good up to that point, but then you drifted off into maudlin despotism again. Must be hard when the only solution that pops into yer haid is the government one.

First, everyone's taxes should be cut. Employers should be free to pay their employees any way that the two can agree upon, whether that pay includes insurance, or the money in lieu of it. And after that, people should be free to buy their own health insurance of not, as they themselves see fit.

But that's not going to solve much of the so-called health care crisis.

The only way to stop the horrendous yearly increases in cost of care and insurance is to get the government out of the health care business altogether. That includes trashing all the onerous regulations on the insurance market, abolishing Medicare and Medicaid, and disbanding the wholly unnecessary FDA (which drives up costs by the hundreds of millions, and restricts access to new technologies and drugs.)

Now we're talking radical, instead of pretending that more creeping socialism is the Hope and Change that America has been waiting for all its life.

Get it?

Of course you don't. You can't imagine a world where you can't pretend that the government is your savior, especially when you believe all those earnest fellows telling you what they're going to do for you, and how they're going to get it from those rich bastards. Too bad for you.

Posted by: msoja | September 4, 2009 8:57 PM | Report abuse

Ezra,

I think you are wrong about managed care (at least as practiced in the 90s). In aggregate, I'm sure managed care isn't that bad. For individuals with "non-typical" health problems, it's a nightmare. It also leads to a lot of suffering (while you wait weeks for friggin' approvals, or more likely, denial and appeal). It also forbade people from seeing most of the specialists (the rule about only being able to see a specialist in your PCPs group was incredibly retarded). My wife had a case where the specialists she needed to see (to save her kidneys) were all, to put it mildly, jackasses, incompetent, or both.

Managed care didn't fail because people inherently hated the idea of managed care. It failed because the implementation was abysmal. My dad got tossed around for 15 years, slowly losing his ability to balance... on a recommendation from a family member, he finally saw a surgeon who found a very serious problem in his neck (pinching of his spinal chord). He paid the doctor in cash because he wasn't part of my dad's "network." He spent 3 months trying to figure out how to get this surgeon to be able to his surgery... then he turned 65, got his Medicare card, and had it done in less than 2 months.

Aggregate data doesn't mean crap when 1-2% of the people get totally screwed. Their stories will always trump "it's better, on average."

Posted by: BlazingDragon | September 4, 2009 9:40 PM | Report abuse

The newish Dutch system seems to make a useful(ish) distinction between the kind of short-term care that comes under the remit of private insurers (premiums: EUR100/mo) and long-term care, handled by the public system -- i.e. care that can be treated as a retail purchase, and care that's neither priced nor priceable for retail.

"The only way to stop the horrendous yearly increases in cost of care and insurance is to get the government out of the health care business altogether."

BS. That's just ideological projection. Show us that the magic market fairy does this in the real world for *healthcare*, and we'll take you seriously.

Posted by: pseudonymousinnc | September 5, 2009 1:53 AM | Report abuse

--"Show us that the magic market fairy does this in the real world for *healthcare*, and we'll take you seriously."--

There isn't anything the market can't do better than the government, and if you had a specific gripe or doubt, I'd unravel it for you, but I'm not going to guess as to which particular weak notion about the market's alleged failings is on your mind.

I will point out that there hasn't been a free market in health care for quite a long time. Since the mid-sixties (and you know what I'm talking about) there's been one imposition after another, with bigger, fatter regulations and new layers of bureaucrats every year. Now the burdens put on the market have become so great that the Ezras and Howards and all the flatulating politicians are being forced to expand their intrusions into other markets in order to feed the unendingly hungry maw of their pin headed collectivism. And none of what is being proposed, none of it, will go to solving the so called crisis. It will only make the crisis worse. Costs will continue to rise, because the simple laws of economics dictate that they must when external actors (government) attempt to fiddle with supply, impose rationing, try to restrict price, etc. More of the same will inevitably find us continuing down the path that the politicians sent us down nearly forty some years ago. The only way back out of the morass is toward the free market.

Posted by: msoja | September 5, 2009 10:17 AM | Report abuse

ps. I should also take the time to point out that the strongest argument for the free market is that it is non-coercive. Whether anyone here remembers or not, the U.S. was founded on the principles of freedom for all, with an emphasis on individual rights and self government. Even were The State to somehow manage to impose a working health care system on the country (which they can't and won't), the coerciveness, the theft of monies, the violations of individual rights, are anathema to the ideals upon which the country was founded.

Posted by: msoja | September 5, 2009 11:26 AM | Report abuse

msoja: “There isn't anything the market can't do better than the government, and if you had a specific gripe or doubt, I'd unravel it for you, but I'm not going to guess as to which particular weak notion about the market's alleged failings is on your mind.”

Really?

Let’s see: roads, bridges, airports, air traffic control, water, sewer, irrigation, flood control, basic scientific research, firefighting, police, education (even “private education” is heavily financed by the government,) drug and food safety, military and national security, seaways. I could go on.

Since we’re on health care, let’s throw in Medicare, which has been better at controlling costs than private insurance for most of its history, including the last ten years, and has a higher level of satisfaction among its enrollees than private insurance.

Granted all of these things require constant tinkering, repair, and alteration to make them continue to work well, but that is true – although often less likely to happen – of private market elements as well.

The general rule is that projects requiring huge capital investment and ongoing repair, that serve people in a way that is evenly divided over long term but unevenly divided in the short term, or that require time horizons going well beyond the next fiscal year are better done by the government, while private industry does better on projects that have short time horizons or that benefit only a small number of people. Health care fits in category A, which is why every single developed country except the US has treated it like roads, bridges, etc.

Failures of the market: that’s kind of funny in an ironic way, given what the economy has done in the last few years.

Posted by: PatS2 | September 5, 2009 11:42 AM | Report abuse

aah the 90's. The only time any healthcare costs were sustainable. We need to get back there and if things go the way I think they are "trigger option" we'll get there. thank God for Olympia Snowe, the real hero in the healthcare debate if things fall as i suspect.

I'd also love to see a medical board established that governed each insurance company's practices as far as MRI authorizations, step therapy for prescriptions etc. Part of insurance's problem is that every time you or your employer changes every rule is different and even the rules within the rules are different. If every insurer had to say authorize MRI's for a certain set of proceures but no auth was required for others it would be simpler for all. I'm the first one to bark against more government bureaucracy but this is one instance it could help all consumers. Standardization in this way is a good thing and takes some of the complication out of healthcare.

Posted by: visionbrkr | September 5, 2009 12:18 PM | Report abuse

Erza, perhaps accidentally, makes it sound like Wyden-Bennett cannot become more popular. That's no sure thing either way.

Instead of presuming Wyden-Bennett can't become popular, I'd like to see responsible people everywhere begin to advocate the best ideas, period, and not give up on them with an eye on the politics of last month, etc.

Posted by: jozzer | September 5, 2009 12:19 PM | Report abuse

--"Let’s see: roads, bridges, airports, air traffic control, water, sewer, irrigation, flood control, basic scientific research, firefighting, police, education (even “private education” is heavily financed by the government,) drug and food safety, military and national security, seaways. I could go on."--

Listing things that government has co-opted does not equal proving government outperforms free markets. There are plenty of free market examples among the items in your list, and I daresay the free market is more efficient and less costly, when it's allowed to operate unhindered. I've long advocated for the privatization of roads. Airports would be easy. Federal air traffic control is a disaster waiting to happen. Etc. Socialist education is an utter failure. The police could be privatized, if you think about it. There is nothing that private individuals agreeing amongst themselves could not do better than is being done now by glad handing politicians and their freeloading bureaucratic pals.

--"Since we’re on health care, let’s throw in Medicare, which has been better at controlling costs than private insurance for most of its history, including the last ten years, and has a higher level of satisfaction among its enrollees than private insurance."--

There is virtually no free market health insurance left in the country. Go on, find me an unregulated, unmandated, private health care insurer. I'll wait. The insurance industry is "private" only in a quaint sort of way. There's little competition to be found, because all the competition has been regulated and legislated out of it. Think, man, think.

--"Failures of the market: that’s kind of funny in an ironic way, given what the economy has done in the last few years."--

Fannie, Freddie, soon the FHA, the FDIC is in peril, the health care "crisis", political pressure to mortgage lenders, etc., and you want to blame the free market.

Posted by: msoja | September 5, 2009 1:28 PM | Report abuse

The problem with Healthcare is it is not really a commodity subject to the laws of supply and demand such as lets say automobiles or cell phones. Healthcare is more about getting the right treatment at the right time, and aligning all of this is difficult to achieve. See the paper Arnold S Redman, "The Health of Nations"
http://www.pnhp.org/news/Health_Nations.pdf

The only true free markets I know of are farmers markets, where you go buy goods from honest brokers. You can see, touch and perhaps even have sample. You know the price. You can check out other vendors. Vendors can't sell rotten or bad fruit for long as no customers will buy your product. That's how a free market should work.

With healthcare the product is quite different. Often you don't know what you are purchasing or the cost, or worst case you are in an emergency situation where you simply don't have the time to shop around. And no one really actively wants to go to the doctor.

And we have over 1500 health insurers and the government as the vendors. Insurance companies work on the model of take in more profit and pay out less to return more to themselves and their shareholders. To their credit, they are doing what they are supposed to be doing. The private industries in HC have no motive to make people more healthy because they have mechanisms like rationing out those with pre-existing conditions based on price, restriction of networks and specialists, and the abhorrent practice of rescinding policies to do what they need be doing - making as much profit as possible.


I could buy free market principles if I was convinced HC was a commodity.

Posted by: jjwoodee | September 5, 2009 1:48 PM | Report abuse

"I'm not going to guess as to which particular weak notion about the market's alleged failings is on your mind."

Stop waffling. I repeat: show us that the magic market fairy does this in the real world for *healthcare*, and we'll take you seriously.

It's a simple request, and the world is a big place. Until then, you're just arguing from ideological abstractions, and the result is ever so much glibertarian BS.

Posted by: pseudonymousinnc | September 5, 2009 5:01 PM | Report abuse

@msoja: "There is nothing that private individuals agreeing amongst themselves could not do better than is being done now by glad handing politicians."

Setting up an insurance business in a new state costs many billions of dollars. How does an insurer justify to its shareholders (or partners in the case of non-profits) an expenditure of that magnitude, that may or may not pay off? It can't--which is why the mainstream insurance market has become so stagnant. Only the government has the resources to do this.

Posted by: bmull | September 5, 2009 5:03 PM | Report abuse

--"With healthcare the product is quite different. Often you don't know what you are purchasing or the cost, or worst case you are in an emergency situation where you simply don't have the time to shop around. And no one really actively wants to go to the doctor."--

Sounds like having a car break down on the highway. Do we need a government takeover of the car repair industry?

As for Relman, I think he's a hack, and I don't think he's honest. Yes, I know he's affiliated with Harvard, but that doesn't mean squat to me. The place is a socialist think tank. Many of its business graduates are now staring at balance sheets of their own creation that would make Ponzi blush.

The Relman PDF starts out with Relman appealing to the authority of one Kenneth Arrow, who made some assertions about health care that Relman can now refer to so as to sound authoritative. I don't care how many removes it goes through, asserting something is not the same as proving something. Saying over and over that health care is not a commodity doesn't make it so. Health care is like anything else. Someone learns how to provide some aspect of it, and goes about trying to sell it. Other people want or need it, and negotiate over the particulars of it. And that's all it is.

Here's Relman citing Arrow: "To protect the interests of patients in such circumstances, Arrow contended, society has had to rely on non-market mechanisms (such as professional educational requirements and state licensure) rather than on the discipline of the market and the choices of informed buyers."

That's hack propaganda right there. "[S]ociety" is an abstract concept. It doesn't exist. The "professional educational requirements and state licensure" are usurpations of individual rights, co-opted and imposed by various usurping governmental bodies, often in service to some corrupt politician's personal interests. There is no reason in the world that private individuals could not amicably arrive at and voluntarily follow certain codes of ethics related to health care, without government "requirements" and "licensure", just as they do in many other areas. And, yet, Relman glosses right past it. And that's why I call him dishonest, and a socialist hack. He uses the invalid intrusion of government into private markets to justify further intrusions. Just like every other marxist-commie-socialist-fascist-nazi-collectivist around.

Posted by: msoja | September 5, 2009 6:44 PM | Report abuse

Okay, msoja, we get it, you're a cultist. You've proved your cult bona fides, so go sit in the dunce corner now.

Posted by: pseudonymousinnc | September 5, 2009 6:59 PM | Report abuse

msoja --

Please show me an example of health care, transportation infrastructure, education, etc etc actually working using what you would consider to be a market approach.

It's easy to be critical if you don't have to produce real world counter-examples.

From what you are saying, I am going to guess that you are a fan of Austrian school economics. The most interesting thing about the Austrian school is the great pains they take to show that there has never been an example of a successful application of Austrian school ideas. The most famous real world study of Austrian school ideas is devoted to proving that the supposed proponents of market economics that presided over the onset of the Great American Depression were not practioners of Austrian school approved economics.

If we are going to talk about imaginary economic systems, my personal favorite is "The Culture" as envisioned by Iain M. Banks in his science fiction books.

If we are going to leave the realm of science fiction, we need to see real world examples.

Posted by: PatS2 | September 5, 2009 7:13 PM | Report abuse

--"Setting up an insurance business in a new state costs many billions of dollars. How does an insurer justify to its shareholders (or partners in the case of non-profits) an expenditure of that magnitude, that may or may not pay off? It can't--"--

You seem pretty sure of yourself. I guess I shouldn't even try to Google up insurance cos, since none exist.

Have you ever wondered, I wonder, about the number of hurdles and the cost of those hurdles, said hurdles imposed by meddling collectivists via legislative and executive fiat, that an insurance business has to leap in order to get down to its business? The easiest way to quickly cut insurance costs, and to create new and exciting insurance products, would be to get government off the back of the insurance companies.

Do you know what rent seeking is? It's when a company like Aetna agrees to, or even helps write, legislation that holds it to some or another standard, or forces it to comply in some otherwise arbitrary manner, because it knows it can afford the costs, but that those same costs will prevent little upstart Aetna's, who have yet to amass useful amounts of capital, from horning in on big Aetna's business. It's going on all over America, now, and it's a big contributor to the high costs of things. It's also how socialism spreads. It's also how competition and entrepreneurial endeavors are stifled and killed.

Of course, a shorter reply would be: Why don't you worry about your own sorrowful life and let the insurance co. board and associated shareholders lookout for their business?

Posted by: msoja | September 5, 2009 7:21 PM | Report abuse

--"Please show me an example of health care, transportation infrastructure, education, etc etc actually working using what you would consider to be a market approach."--

Please give ME an example, before the year 1776, of a country founded on the principles of freedom and individual rights, as opposed to the old order still holding sway in Europe and much of the rest of the world where the citizen lives to serve the state. I'll wait.

On the other hand, you must not get out much. There are many successful private health care institutions, despite the heavy burden of five decades of government distortions, intrusions, and regulatory impediments.

There are private roads in the country. If I recall correctly, the state of Illinois recently sold some or all of I-90 to a private group. Ah, yes, Wikipedia. A consortium now leases a substantial portion of I-90 in Illinois and Indiana, and is responsible for maintenance and upgrades. Also, Wikipedia: "Private highways are common in Asia and Europe; in addition, a few have been built in the United States on an experimental basis."

Education? You've got to be kidding me.

Posted by: msoja | September 5, 2009 7:56 PM | Report abuse

That should read: A private consortium

Posted by: msoja | September 5, 2009 8:03 PM | Report abuse

'Managed care' was the bogus equivalent of 'co-ops' back when we went through this the last time around. There were all these claims made for it despite the fact that it had only been around for a short time.

As far as premiums rising by "just 2 percent" from 1995-1997, that just means the insurance companies knew how to behave themselves as long as government alternatives were on the table.

What do they say, fool me once...

Posted by: leoklein | September 5, 2009 9:00 PM | Report abuse

"rights, as opposed to the old order still holding sway in Europe and much of the rest of the world where the citizen lives to serve the state."

Waffle, diversion, BS. Also: msoja approves of slavery if it's wrapped in fine abstractions. Back to the dunce corner with you.

Posted by: pseudonymousinnc | September 5, 2009 9:49 PM | Report abuse

you can't push a fair health reform when the country has been told the "government is evil incarnate" for over 30 yrs. Reality has very little to do with Health care and reform. this is all about the same old effective strategy of "co-opting" government.

spin for over 30 plus years doesn't come crashing down just with the truth. Lies upon lies and distortion upon distortion. very effective and very thorough for so long.

Health care is one of those easy "marks" Republicans have used the same of "government is evil" theme, so they can keep the corporate sponsors on their side of Congress.

follow the money honey!!!!

Posted by: BernardEckholdt | September 5, 2009 10:22 PM | Report abuse

pseudonymousinnc, you're lying, of course, and it's obvious, so?

By the way, did you know that the HMOs and the PPOs that everyone seems to hate are just inordinately incompetent creations of government? That's right. Thank stupid Richard Nixon and the charlatan proto-marxist-commie-socialist-fascist-nazi-collectivists skulking around Capitol Hill in the seventies. Add the 1973 Act to the list of things that killed health care in the United States.

Posted by: msoja | September 5, 2009 10:47 PM | Report abuse

--"you can't push a fair health reform when the country has been told the "government is evil incarnate" for over 30 yrs."--

The lessons of history in such regards go a lot deeper than thirty years (which you might consider reflects on the shallowness of yer education.) That's why the founding of the United States (a little more than thirty years ago) on the notion of self-government and freedom, with various guarantees against the predations of government written into the founding charter was such a radical step. History was and continues to be replete with examples of evil men wielding their respective levers of power to the detriment of their citizenries. If you think it can't happen here, you're a fool.

Despite the sweet talk from your favorite pols, Bernard, no third party can really ever have your best interests at heart the way you (ought to) do.

Posted by: msoja | September 5, 2009 11:02 PM | Report abuse

what are you talking about. lol.
scamming people has gone on for ever and ever.
the GOP doing it to America as proficiently as they have been is what i am referring to.

discount, denigrate and deflect, 3 ways of obfuscating really works if you keep at it long enough. i've only been around since Nixon, so i can't pretend to say much about what transpired before.

Posted by: BernardEckholdt | September 5, 2009 11:23 PM | Report abuse

msoja- I agree that complete deregulation of the health industry would be better than what we have now. But in light of what we have now--the political realities--the only mainstream proposal better than the status quo was the public option.

And if you want to google something, google the "Tahoe Accord" which explains how Kaiser Permanente found it didn't have adequate capital to compete in new states. KP is by far the most cost-efficient major insurer so if the market were working you'd expect it to be everywhere by now.

Posted by: bmull | September 5, 2009 11:44 PM | Report abuse

There's no difference of any import between the two political parties, anymore, Bernard, but you'll find the better propagandists on the left (see Klein, though his airheadedness kind of blows it.) Many on the right are just stupid, politically speaking, but the left has had an evil hair stuck up its Kennedy since before Roosevelt.

If I were you, I'd find a nice girl, get out of the city, and keep your head down.

What I did.

--from the hills of Tennessee, over and out for the duration

Posted by: msoja | September 5, 2009 11:45 PM | Report abuse

You're still waffling, changing the subject, and BSing, msoja.

The dunce corner suits you.

Posted by: pseudonymousinnc | September 6, 2009 12:05 AM | Report abuse

Hey msoja, I heard you hate government so I took the government out of your government. Have fun in Somalia! Send postcards.

Posted by: tbomb | September 6, 2009 1:02 AM | Report abuse

I'd like to invite people on both sides of the government/no-government argument to look at an important, successful, middle-ground precedent -- quite pertinent to the discussion about offering a public option (buy-in to Medicare or even the Federal Health Care Employee Program, which is the employer for all federal employees, including Congressmen).

That precedent is the origin and effects, through the marketplace, of creating the Tennessee Valley Authority as an energy producer in competition with private corporations, and the parallel passage of the Rural Electrification Act that created the rural electrical coops in the 1930s.

The major regional power companies in the South – Duke, Florida, and Alabama Power – made the same arguments in the early 1930s to block the creation of the TVA and the Rural Electrification Act as opponents of the public option/advocates for the pure-free-market approach are making against a public option to increase competition. In 1930 10% of farms in the US had electricity, but the power companies claimed everyone who wanted electricity had it. With the advent of rural cooperatives and the TVA selling power, 40% of farms had electricity by 1940; 90% by 1950. All of the power companies remained very profitable and are still around today; however, the pressure of government-induced competition caused the price of electricity per KWH to fall by more than 30% between 1940 and 1959, because the private companies had to become more efficient, even as the customer base expanded several times over, allowing more total profit with a smaller profit margin. On the flip side, if we had no TVA and REA, much of the rural South might still be reading by candlelight – and, conceivably, without the industrial effects of national electrification, there might even be a reasonable case to make that we could’ve lost World War II.

Bottom line is there seems to be a lot more upside overall in even health insurance reform with competition covering everyone and some incentives for efficiency induced through a public option than the much-touted downsides. Nothing is going to be perfect and insurance reform is only a start on fixing all of the ills with health/healthcare in the US. However, we'll all be dead long before the conditions are right for Perfect to happen.

Seems odd to me that I've only heard this precedent mentioned once in any of the healthcare forums -- that once, by a very successful hospital administrator in Birmingham, AL.

See Nathaniel E. Shechter's article, "Low Purchased Energy Costs to the Rural Electric Cooperatives" at http://www.jstor.org/pss/3145347 on history of rural electrification over the objections of the commercial power companies. Also or as an alternative, see http://www.nal.usda.gov/ric/ricpubs/rural_development_chap2.pdf

Posted by: avbrhistorian | September 6, 2009 1:46 PM | Report abuse

Ezra- you are really on to something here. People are still trying to lift the banner for Medicare for all, when the program is about to destroy the economy over the next 20 years. The thing people love about Medicare, that they never turn anything down, and that it doesn't matter how much the care costs, is one of the reasons that it is running out of money. Once we lose our ability to borrow money internationally, once the baby boomers have fleeced us for everything we have or never had, then we won't have the luxury of demanding unlimited care for all. The Republicans are completely lost on this issue- effectively arguing for what they oppose.
The only hope is bringing our prices down to what we are willing to pay. The most efficient way to do this is a consumer driven system, where we get to see the prices and make rational decisions with our money. Third party payer is not an ideal way to buy anything for a low price.

Posted by: staticvars | September 7, 2009 12:09 AM | Report abuse

For all of you idiots out there that don't believe a market driven system exists- at a massively lower price than the regulation we have- check out Singapore. It's highly regulated, but regulated to provide for free and open competition and pricing, progressive means based payments, and percentage based co-pays so that the consumer actually has an incentive to avoid tragedy of the commons logic.

http://econlog.econlib.org/archives/2008/01/singapores_heal.html

Posted by: staticvars | September 7, 2009 12:14 AM | Report abuse

staticvars -- you're arguing at crosspurposes here.

msoja is one of those marketroid cultists who believes that anything but a completely unregulated and friction-free market is slavery. He wants a situation where pure competition determines prices and standards, so that self-empowered individuals can haggle with their surgeons on price during their knee reconstruction and bring in a new one if the current one isn't up to snuff.

Posted by: pseudonymousinnc | September 7, 2009 12:12 PM | Report abuse

"The thing people love about Medicare, that they never turn anything down, and that it doesn't matter how much the care costs, is one of the reasons that it is running out of money."

But that's at least partly a consequence of Medicare being a healthcare oasis for seniors. "You've made it to 65! Congratulations! The healthcare buffet is open." Change that dynamic, and you get people in earlier, and identify problems when they're easier and cheaper to treat.

"where we get to see the prices and make rational decisions with our money"

People don't make rational decisions about healthcare. People don't make rational decisions about healthcare. People don't make rational decisions about healthcare. And most healthcare is not priced for retail purchase.

I can see room at the bottom end for transparent pricing, and consumer-driven elements -- as I mentioned, the new Dutch system makes that distinction -- even if an obvious side-effect is an expansion of the already-massive quack-care industry in America. But once you get into the domain of life-threatening and bankruptcy-inducing illness, then seeing the prices up front doesn't make a real difference, because that kind of care is priced in the domain of "if you have to ask, you can't afford it".

Posted by: pseudonymousinnc | September 7, 2009 12:59 PM | Report abuse

The TVA is a sad joke, and should be abolished. Richard Munson wrote in 2001:

According to William Chandler, author of The Myth of TVA and a researcher with Battelle National Laboratory, those investments performed poorly when compared to development in adjacent regions. Chandler, for instance, concluded:

Per-capita income growth in surrounding, non-TVA areas equaled or exceeded that in the TVA region, despite they're being equal at the beginning of the TVA experiment.

Manufacturing employment grew more slowly in the TVA area than in surrounding non-TVA areas.

Rural electrification progressed more slowly in the Tennessee Valley region than in comparable surrounding areas.

The installation of piped running water in households and the utilization of home electric appliances proceeded less rapidly than in non-TVA states.

In its defense of appropriations for TVA's non-power programs, the Clinton administration repeats the myth that "TVA is a tremendous success," citing statistics that per-capita income increased ten-fold in the TVA service territory, well above the national average. Yet such statistics are misleading, in large part because the Tennessee Valley started from such a low base in the 1930s that any gain looks substantial in percentage terms. When comparing instead the growth in per-capita income between Tennessee, where TVA supplies virtually all the power, to neighboring states that also suffered economic hardship in the 1930s, TVA's "success" is less clear. In fact, per-capita income increased more substantially in non-TVA Georgia, Kentucky, and Virginia than it did in Tennessee.

TVA customers for many years certainly benefitted from electricity rates that were about half the national average. Such benefits, however, were made possible by substantial (if unwitting) subsidies from taxpayers across the country and by TVA's failure to pay for cleaning up its own pollution.

//end cite

I'd give the link to the 10,000 word article (titled: "Restructure TVA:
Why the Tennessee Valley Authority
Must Be Reformed"), all of it an indictment of the TVA, but the one I have has gone bad. Fortunately, I saved a copy of the page last January, after the TVA lost control of its ash retention pond a few miles up river from here.

Using the TVA as an example to legitimize health care is a weak joke.

Posted by: msoja | September 7, 2009 2:05 PM | Report abuse

William Chandler, himself:

TVA didn't live up to its supposed goals. Both during and after the Great Depression, manufacturing jobs were created faster just outside the TVA area than within it.

Non-TVA counties in northern Georgia and Alabama and western North Carolina in 1933 were as poor as or poorer than TVA counties, but by 1953 they were generally better off. Even rural electrification and the use of household appliances grew faster in the non-TVA south.

To be sure, TVA created jobs for some 13,000 workers, but for at least four decades, Depression-era investments in TVA dams, waterways, and recreation areas have failed to pay for themselves by any economic measure.

In the 1950s and '60s, under plans enacted by former chairman David Lilienthal, populist Democrat the agency made its mission to provide electric power, at any environmental or social cost. Within two decades, TVA's coal-fired plants made it the nation's largest violator of the Clean Air Act. A coalition of environmentalists sued the agency in the late 1970s and won, forcing it finally to install air pollution controls. But even today, TVA ranks among the nation's largest sources of greenhouse-gas emissions.

//end cite

http://www.csmonitor.com/2009/0225/p09s01-coop.html

Abolish the TVA

Posted by: msoja | September 7, 2009 2:51 PM | Report abuse

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