Health care: out of options?

Economist Richard Thaler has a thought-provoking, argumentative piece in today’s NYT that takes a critical look at the current debate about a public option, or government-run option, for health insurance. The gist of Thaler’s column is that having a public option is unlikely to make much of a difference, at least if it is required to break even. Interesting stuff, especially coming from a sometime Obama adviser and top behavioral economist.

Democratic National Committee Chairman Howard Dean has a new book out about health care which says a public option is absolutely essential for serious reform, but evidently Obama and Health and Human Services Secretary Kathleen Sebelius have backtracked on that one or were not so keen on it in the first place. Thaler reminds us that the two key issues here are (1) covering the uninsured and (2) bringing down costs. Whether and how that can be done with health insurance cooperatives, the leading proposed alternative to a public option, will be two of the big questions in the weeks to come.

UPDATE, August 18: Rethinking the Economy has a pointed rebuke to Thaler.  So does Dean Baker.  Both suggest he dismisses the public option much too blithely.

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10 Responses to “Health care: out of options?”

  1. democommie Says:


    The problem is this, imo. The insurance companies very obviously don’t want this to happen. They have spent many millions of dollars on attack ads in their misinformation campaign. It also appears that the Blue Dog Dems are cashing in on their “fiscal conservatism” to the tune of getting a pretty good surge in campaign contributions from those same folks.

    Leaving the situation such that insurance companies do the same thing drug companies do under the prescription bill is simply going to continue to hurt the under and uninsured.

    Perhaps the template I sent you the other day should have contained one of the sentences I struck:

    “That the congress are, regardless of party affiliation, craven dogs, willing to do only that which helpt THEM, is beyond any doubt.”

  2. Richard Says:

    I find it startling that the conservative argument that a “public option” would drive private companies out of business is looked upon as some sort of radical view. As Thaler writes in the NYT:

    “We hear from the right that an insurance plan run by the government will drive all private-sector insurers out of business and be the first step toward socialism, if not communism. The left claims that only a public option can give evil insurers the competition they need to create much-needed reform.”

    In this case I will have to side with the Republicans logically. If this “public option” is, as Obama says, required to “break even,” then it is essentially behaving as a loss-minimizing/profit-maximizing business and there is no reason for government intervention at all. Obama should just quit being president and start a health care firm if he thinks such a plan is plausible and he wants to do it. That’s what capitalism is all about.

    On the other hand, we can be more realistic and assume the case that Obama is lying. In such a situation, the public option must be subsidized against private firms by the government in order to give it a competitive advantage over these latter firms. Such behavior tends toward the monopolization of health care service under this public option, since competing private firms have no such ability to tax the public and divert funds to themselves (in fact, they must actually pay additional taxes to the government in order to subsidize this public option competitor). If Obama wishes to create a public option that can “compete” in every sector of health care, this will inevitably lead to a degree of government-induced monopolization of each sector, to whatever level government wishes this monopolization to occur. If government wants to conquer an industry through competition, it can quite easily. Simply divert funds using taxation and divert resources using regulation from competing firms to the favored, government-run firm, until all competitors are eliminated. In this case, it isn’t truly a question of whether government action will monopolize parts of the health care industry; it is merely a question of the degree of this monopolization.

    Further, the true cost of health care will be masked. Whereas under a private system assuming no government regulation and interference, an individual must pay for health care to the extent that he or she uses it, and so through his or her productive action must cover the cost of his or her consumption, under this “public option” part of the cost is subsidized by taxpayers, and only part would be paid by consumers. A superoptimal consumption of health care would commence.

    To democommie: Your argument of the link between the insurance companies and the government may be correct. However, the solution I suspect you advocate is additional government oversight, where in fact the more classical liberal position of the elimination of the abilities of government to favor certain firms against others would likely purge the system of this corruption more efficiently.

  3. democommie Says:


    You lost me at:

    “On the other hand, we can be more realistic and assume the case that Obama is lying.”

    When we KNOW that the GOP and the reichwing are lying and spending a lot of time and energy to build “grassroots” networks of hysterical and idiotic “deafers” (they cannot hear the truth about what’s going on in this situation) to drown out the voices of more sane and disciplined commentators and to prevent any genuine debate at the “Town Hall” meetings, it is seriuosly disingenuous on your part to make such a statement.

    We have had a Social Security program in this country for over 70 years and yet private insurers are still doing just fine selling annuities.

    You might want to try a different tack.

  4. democommie Says:


    This link:

    has some heartbreaking photos.

    I saw it and thought (among other things), “Wonder it would have been like without medical care, and adequate means to pay for it”

  5. Richard Says:

    democommie: You should reevaluate your counterargument. My point was not that any political party lies more than any other; I am not a political theorist, I am an economic one. In truth, I mislike both political parties. My argument was a logical one: an “public choice” is not government run *unless* it receives government subsidies or preferential treatment. If a “public choice” breaks-even, as Obama proposes, it is not a “public” choice, but rather a private one–it is essentially a private firm (you could analyze it as a nonprofit if you wish, it does little to change the result).

    Interestingly, while the “right” argues with logic and reason, the “left” seems to respond with blistering outrage at who they think, as you write, “cannot hear the truth about what’s going on in this situation.” I will leave the interpretation of this to the political theorists.

    As to the heartbreaking photos, why don’t you start donating to the private nonprofit charitable organizations who try to ameliorate such issues?

    Wait, it’s so much easier for an individual to demand government enforce laws that require, by force, for all to pay, rather than decide themselves to seek to reduce fellow human suffering. Right! More power to the State! Less individual initiative! Woohoo!

  6. democommie Says:


    Let’s shitcan Social Security and all of the other social programs while we’re at it. None of them make any money or run without government subsidy. A lot of people feel much the same way about running all sorts of infrastructure programs that are of no benefit to me. And then there’s that whole military thing.

    You sound like a libertarian who only wants as much government as is necessary (to take care of what YOU deem important).

    “Wait, it’s so much easier for an individual to demand government enforce laws that require, by force, for all to pay, rather than decide themselves to seek to reduce fellow human suffering. Right! More power to the State! Less individual initiative! Woohoo!”

    I’m not sure whether that remark is meant as an insult to my intelligence or just a lame attempt at irony. For a fella who says he’s “an economic theorist” I don’t see you offering much in the way of data to back up your “theories”–which, btw, sound about the same as my rants.

    Perhaps since you’re an “economic theorist” you could dig up the releavant data on private charity outlays v public in the wake of such incidents as hurricanes, floods, wildfires, earthquakes and the events of 9-11-2001. I ask this of you only because, on a different blog, when I asked the same questions of a commenter who made similar claims, he was, apparently unable to produce them. I say “apparently” because he did not do so. Perhaps he has all of the data and just doesn’t want to “rub my nose in it”?

  7. Mark E. Says:

    As for Thaler’s first key point, the one thing that everyone seems to agree on is that at least some level of healthcare should be available to all and ultimately it is what society asks for that matters. As such, the government’s sole function in this matter may only need to be to guarantee that level.

    As for Thaler’s second key point, this point needs to be resolved so that the government can afford to address the first point effectively. Perhaps here, the government’s sole role would be to ensure as fair of a free market as humanly possible. If successful, the public health care option may never be needed in this scenario, but its looming presence may help keep the players in line.

    In regards to both points, health care is a moving target, much like the economic system itself. No one know right now what is going to work 20 years from now, much less right now, but we have to try something. If it doesn’t work, chalk it up as a learning experience and try again. Even if we nail it the first time, I can almost guarantee it won’t be the best plan 20 years from now. I just hope we get that future scenario resolved much quicker.

    Its just so sad that everything tying up this much needed reform, however it is to be resolved, is politics as usual, just a lot more of it. We really need business and government to work together on this, just not the way they do now…not even close.

  8. Goswald Hughes Says:

    Markets are not very efficient when it comes to health. People will pay any price when afflicted with a disease. It sets up a situation that can be taken advantage of. The more people who get sick and need medicine, the higher profit margins will be. It’s a racket. Health care cannot be a profit making monopoly. There is too much at stake. Good health is a right not a privilege. It is a public good that needs to stay in the public sphere (like the fire department or police).

    Human health does not lend itself well to be traded as a commodity by the free market. It is a public good, that a market will classically under-produce, just as it under-produces education and a clean environment. This is why it must be supported, like education and the environment is. Public schools and state universities are democratic state institutions (albeit full of people who vilify social principles) that is supported alongside the market, Health care can be as well. Such an arrangement will provide a full and free market, where the least advantaged can still get basic coverage.

    The exploding cost curve in health care is a natural consequence of the accumulating power of the dominants in an area where demand is inelastic. There are too few providers, too few doctors, too much collusion and too much overuse, for any cost containment to become a systemic possibility. The AMA restricts the number of doctors, which gives them tiny monopolies that are compensated disproportionately. The third party payer model of insurance causes the sick to go to the doctor more often than they should. Doctors practicing defensive medicine use more tests than they should. They induce demand for other doctors and specialists. There are armies of insurance agents employed to deny claims. All of this increases costs. There are systemic tendencies towards ever escalating price. This is why a government intervention on behalf of the people is required. The market cannot deliver care in the quantity and at the price that is needed. It is not the market that is to blame but a government that has failed to level the playing field between buyers of insurance and the sellers.

    Markets need government to maintain their freedom. Excessive power of dominants needs to be adjusted from time to time to make capitalism free. Regulation is what makes markets free. There is a place for private companies to compete with a government plan and prove that they can do it better and cheaper, but we cannot pretend that health care rationing by the insurance business is free market. It will become free when the govt. option exists as a moderating force.

  9. democommie Says:

    Goswald Hughes:

    I agree. The only thing I would like to see the government do, in addition to making some sort of “care floor” is to make more doctors, or at least care givers who could do perform many of the jobs for which doctors are now being paid ridiculous fees when the work is technical or mechanical in nature and could be performed by any reasonably intelligent and well trained individual.

  10. Mark E. Says:

    Mr. Hughes,

    I also agree with your points, and very well written they are indeed. However, we first need a government more detached from the interests of the companies that they should be policing. Public financing might be a start toward that end.

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