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Government Healthcare September 4, 2006

Posted by federalist in Economic Policy, Government Spending, Healthcare, Regulation.

Ron Gettelfinger, President of the United Auto Workers, repeats (also here) one important characteristic of insurance: Its efficiency increases with the size and diversity of the insured group.  However, he follows this fact with four socialist fallacies on his way to concluding that American healthcare should be funded by the federal government.

Fallacy #1: The only way to increase economies of scale in health insurance is to publicly fund them at the federal level.  Reality: Health insurance at present is heavily regulated at the state level, making portability and competition at the national level impossible.  Simply opening a national market for health insurance would afford private insurers all of the diversification opportunities they could possibly need.

Fallacy #2: Healthcare would be more efficient if it were provided by government instead of employers.  Reality: Government has distorted the market for healthcare by allowing employers to buy it with pre-tax funds, but generally requiring individuals to purchase it with post-tax income.  This is the cause of our convoluted third-party-payer system.  Eliminating market distortions like this would take employers off the hook for buying healthcare.

Fallacy #3: Healthcare and insurance are monolithic commodities.  Reality: There may be some baseline level of healthcare that we can agree should be provided to all people: Perhaps obstetrics, vaccines, and trauma stabilization.  But in this age of burgeoning medical technology it is impossible to suggest that every individual is entitled to the same comprehensive level of healthcare.  That would be no more tenable than arguing that every car should be equipped with the most advanced safety features money can buy: In reality the rich can always buy more security than the average individual can afford.

Fallacy #4: If government provided universal healthcare our employers would become more competitive in global markets.  Reality: Just because government pays for something doesn’t make it free.  The source of the funds could be shifted around, but ultimately what is spent by government comes out of GDP.  And if history is any guide that government service will be higher cost and lower quality.

Universal government healthcare is not a panacea.  And it is no more American than requiring the government to buy every citizen an identical car.



1. federalist - December 20, 2007
2. federalist - June 26, 2009

John Calfee has an excellent essay out today that debunks the arguments that government can offer any economies of scale or improvements in administration over what the private sector currently supplies to healthcare consumers.

The only advantage government has as a consumer is monopsony power, but of course any advantage it gains through monopsony come at the expense of suppliers and would tend to reduce the supply of healthcare as compared to a competitive equilibrium.

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