More On Public Option

I tried to post in the comments, but it was too long, so here goes:
Alan, you are mixing up words and confusing issues.

"A system that leaves millions unprotected is not efficient; it is a failure."

The delivery of care is an efficiency issue. The millions of uninsured is an availability issue, not efficiency. They are different.

"What real public good is answered by limiting competition and thereby leaving people uninsured? If the private firms in our private-public system will not fill the gap, and if filling the gap is a public good (it is), why should the public not expand its share to secure that good?"

Because again, if the public option undermines competition with subsidies, which will be inevitable. Then it will lower medical outcomes in the future.

Basically, what I am saying is this:

If your goal is to cover as many people as possible with some acceptable level of care, acceptable to be determined through the political process, then a government run program fulfils that role as fast as possible. In fact, a single payer, government run health care system would make it happen for everybody right now.

The problem is the long-term. Government run health care will inhibit innovation, lead to rationing, and introduce a whole host of inefficiencies into the system. Medical fraud is one thing I think will definitely increase. That's not even to mention how to find revenue for it.

"If that results in a system better described as a public-private system, it will be because the private firms have declined to mine that gap for profits. We should not forgo a public good because private firms think it is unprofitable or inefficient."

It's not a matter of private firms believing it is. It's not a matter of ME believing it is. It is a matter of simple fact that government is almost always more inefficient than private companies competing with each other.

We have government provide certain things because only the government can, national defence for example. It is a public good. And I use public good in the economic meaning, which is that the benefits of national defence go to everybody even if people choose not to pay for it. So, you have to tax. Now, health care is not a public good. It is a private good because an individual, not the whole society gets the treatment or care. I agree with you that health care has positive externalities, meaning that I and society benefit from you being healthy. But health care is not a public good, in economic terms, like national defence.

"Imagine if we ran our transportation system this way. It would be as broken as our health care."

Transportation is actually a different economic problem. Transportation, like the electricity grid and other utilities, has a network layout. Meaning there is a high cost to establish the network initially, but then almost zero marginal cost, ie to add another person to the electric grid or to allow one more rider. This leads to government run or regulated company monopoly as a good choice to fulfil the need. So, from an economic perspective, they are vastly different animals and I don't like the comparison.

"Last night I contemplated the furthering of the Republican position. Since, the Democratic plans are often compared to simply expanding Medicare coverage to more people, and this is found to be objectionable, is the answer to our unaffordable medical system to raise the eligibility age for Medicare to 70? Or, are we arguing that the current extent of public insurance is perfect (to include the recent S-CHIP expansion) and that any further expansion is "socialism"?"

There are two questions here.

First, is the uninsured entirely a question of affordability? As a young person I intentionally went without coverage for a little under a year before I bought catastrophic coverage only. It was risky, but not entirely irrational. The odds that I would need care were limited mostly to an accident of some sort, since most 20-somethings don't really need that much care for disease. So, young people may in fact opt out intentionally, and it may be rational. If we force them to buy more than catastrophic coverage it probably will make them worse off than they should be.

Second, raising the Medicare age isn't something that I would be entirely against, but I'm sure it would be tremendously unpopular. The justification for Medicare, in my mind, is that at some point the odds a policy holder needing medical care go up and the years free of medical care to pay back in go so low that the market does in fact fail. Since we are healthier as a society, the point at which Medicare becomes economically necessary may have increased to 70. But that's not a huge thing for me. The government might save money in accounting, but we as a nation wouldn't be that much better off from the shift.

This is the thing, Alan. Maybe you're right. Maybe we need to expand government medical care to cover more people. I honestly don't know enough about the issue to say definitely that we absolutely do not. BUT, what proponents of expanding government provided insurance are largely blind to is the long-term effects. They want to expand existing medical coverage and care to as many people as they can right now, but don't realize that might hurt us in the long-run.

It's not just the government budget. That's just accounting. Complicated accounting with big numbers, but accounting nonetheless.

Government run operations are more inefficient, which is why most economists want to see some compelling reason why the private market cannot perform the function. In some cases, national defense again, the incentives produce a free-rider problem. In some cases, such as network effects of transportation, a monopoly may be more efficient than multiple providers.

Health care doesn't seem to be that way in most cases. Sure, there are problems. There are some misaligned incentives. The positive externalities indicate that the private market may produce less health care than social optimal. When people reach a certain age, the private market may stop making sense. I'll grant that there are a whole host of issues. But a public run plan isn't the correct way to solve most of them. We need new regulation and maybe some incentives or subsidies here or there, but a government run plan is a mess that we shouldn't get into. It will lead to single payer, which again, as I keep repeating, is the best way to cover everybody right now, but hurts the long-run outcomes.

How does it hurt long-run outcomes?

The negotiating power on buying medicines etc are considered benefits of a single payer by its proponents, but this leverage to lower costs in the short-run discourages innovation because it signals innovators will make less money. Furthermore, a single payer plan that offers everybody the same level of care needs to put limits on what type of procedures they cover. This discourages the development of new procedures. Right now, we have a private insurance market where lots, but obviously not all, people can get the newest care pretty much regardless of the cost. This creates incentives to create new procedures, and then perfect them even if they are costly with mediocre benefit at first.

The big issue is that the US market is the incentive for medical innovation. We pay more than everybody else because we bear the R&D costs while the other developed nations free-ride on the innovation we paid for. If reform leads to more government controlled care, which leads to cost controls that stifle innovation, then future generations will be worse off than they otherwise would be.

So, to proponents of single payer, or expanding government coverage generally far short of single payer, I say it's not just about how to find funds to pay for your program, which may be tricky in and of itself, but also to what that would do to inefficiency in the market and possible discouragement of medical innovation.