Monday, February 22, 2010

Health Care: Public Competition or Price Controls?

President Obama rolls out another idea to address the market power of the health insurance sector:

The plan conspicuously omits a government insurance plan sought by liberals and viewed as a non-starter by conservatives and some congressional moderates. It includes Senate-passed restrictions on federal funding for abortion adamantly opposed by abortion foes as well as abortion rights supporters. The new White House plan would give the federal government the power to regulate the health insurance industry much like a public utility. The Health and Human Services Department — in conjunction with state authorities — would be able to deny egregious premium increases, limit them or demand rebates for consumers.

In the face of monopoly power, standard economics tells us that price controls could actually increase output moving the market closer to what would have prevailed under competition. Conservative politicians, however, often scream about scarcity when liberals propose such ideas. One would think the conservatives would prefer more competition but as I seem to recall, they hated that public option idea that was all the rage in 2009.

1 comment:

TheTrucker said...

What seems to have gone unnoticed in the latest "compromise" is the prospect of applying the Medicare tax to income other than wages. Of all the ideas I have seen concerning the method for funding the low income subsidies this is the best. Unlike Social Security, Medicare benefits are NOT tied to wage income and contribution to the trust fund. All Medicare benefits are the same for all beneficiaries. Medicare wage taxes have never made any sense at all.

If this were expanded, the Medicare trust fund would be taken off budget, the Medicare tax made progressive, and the entire system made self sufficient. Providing a very clear wall between social insurance systems and the rest of government is extremely important. It keeps the lies down.