@Avishai: Competition Means I PoachYour Customers
Bernard Avishai's post "Cooperatives:
The Best Public Option" was really surprising to me, especially given
Avishai's reputation as a business and systems thinker. Avishai admonishes
liberals not to demand a single-payer style public health care option because
size isn't all that matters in business. He's right that size doesn't matter in
business. TPM can beat the New York Times to a story, for example and spend a
lot less money doing it. News Corp. spent gobs of money on Myspace because
Rupert Murdoch realized that a start-up could do what his empire
couldn't. Google didn't start out a behemoth.
So yes, Professor Avishai gets it. Upstarts can kill giants. This isn't new,
it's just part of business and it's arguably easier now that barriers to entry
in certain sectors have fallen. So, it is true that a small health insurance
company could, if it found a way to deliver better care at lower prices, take
on an insurance giant, but only if that smaller insurance company were going
after the customers of the giants. A small company would take meetings with
human resources executives and try to convince big companies to switch. Our
upstart insurance company would fight tooth and nail every day to get new
contracts. Our small insurance company would gladly take business from
everybody. That's how competition works.
The public option has described by Barack Obama isn't open to all customers of
health insurance. It's only open to people who aren't already getting
insurance through their employers -- part-time and lower wage workers or the
self-employed. It's a "public option" mostly for people who have no
other option. These people, lets remember, are uninsured. So they are not
customers of Aetna or United Health of Blue
Cross. When they sign up for the public option, the insurers don't lose
customers because these people are not buying anything from them. This is why
McDonalds doesn't worry much if a vegan restaurant opens up next door. The vegans
who go there were never going to buy food from McD's anyway.
So no, it's not about size, it's about accessibility. The way to bring
competition to the private insurance market is to bring in a public option that
is in constant competition with the private insurers. Everyone should be
able to tell their insurer "if you don't lower my premium, or offer better
coverage... I'm walking" and they should have an alternative they can buy
from.
If we passed a law that said that people can only eat at Burger King if there's
not a McDonald's within three blocks of them then I don't see how you can
meaningfully claim that Burger King is competition. This public option with
health care is far worse than that. If you're already in the private system you
can't leave for the public one. So it's not competition at all.
Professor Avishai, you really should answer this basic question: are we in
competition if I can't take your customers?
Hey Destor:
There's a couple of points to made re: your post.
First, he wrote his post before the Obama speech.
Second, we don't know if he expected Obama to limit the rolls of the public option to just 5% (I certainly didn't even though I was told it wasn't going to be big at first).
Third, your entirely correct point about the lack of competition from the public option that's designed to pick up those not wanted by anyone else is undermined by Avishai's willingness to accept cooperatives.
Cooperatives would eliminate the hated profit motive, would be able to access the insurance exchange and compete like any other insurance company.
I think a lot of people believe that any coop is going to be somehow a semi-professional joint similar to a carwash, but as Avishai points out a consortium could provide coops with plenty of bargaining clout.
September 10, 2009 7:39 PM | Reply | Permalink
The biggest problem we have here is that research has thus far shown that coops simply don't work. Blue Shield is pretty much the poster child for what a real life coop looks like, and it ain't pretty IMO. Non-profit and not-for-profit are two entirely different things ... non profits are often vehicles for accumulating massive personal wealth. The issue is not only bargaining clout - it's also that there isn't a significant difference between the motivations of a private nonprofit and a corporation.
I haven't found any research to show that coops as defined today accomplish the same objectives as the public option at all. Any chance there are any real-life studies you cold link? Medicaid pretty much shows that a public administered plan following a similar blueprint would likely succeed at all stated objectives. I can see no viable argument for shelving something the best evidence shows works for something that best evidence shows does not.
September 10, 2009 8:25 PM | Reply | Permalink
Avishai did know that the public option wouldn't be available to everyone. In his post, he says it would cover less than 20% of the population. Any real competition to private health care would have to have the potential to cover everyone.
September 10, 2009 9:16 PM | Reply | Permalink
I stand corrected, thanks.
September 10, 2009 10:17 PM | Reply | Permalink
Thanks for showing up to talk Lalo. I always appreciate it.
September 11, 2009 7:55 PM | Reply | Permalink
20% of the population is a huge number. That's 66 million people in our nation of 330 million. But from what I've seen the way it's structured only 30 million people would qualify for the PO and of that number only 11 to 13 million would likely sign up for it according to the CBO.
It is structured that way to forestall the Republican argument that the PO will be such a bargain it'll destroy private for-profit insurance. That hasn't stopped the GOP from lying about it though.
One interesting factor is the way the tax encouraging employers to buy insurance is set up.
I believe employers with over $250,000 payroll either take advantage of the tax credits provided and insure their employees or pay a sliding scale tax (8% down to 2% between $500,000 and $250,000, and 8% for all those above $500,000) which will pay for the $53 billion in tax credits. This is set up so most employers will make out better taking advantage of those tax credits. I believe it's also geared toward increasing full time employment instead of contract work.
Right now jobs are cut at the first sign of recession in the US unlike other countries and are the last lagging indicator in a recovery. Slashing payroll and those insurance costs won't be quite the no brainer it is now with HC reform.
That should mean fewer job losses, lighter and shorter recessions and quicker recovery. But if it doesn't employers will be pushing more contract workers into the exchange and the PO will grow.
But either way with most of the insurance company scams outlawed they'll streamline their operations and combined with real competition in the exchange they'll be forced to lower their premiums.
I doubt many HR managers and business owners are going to stay with the same overpriced crappy plans they have now. They'll buy new policies, mostly from the same insurers that are much better and cheaper.
September 11, 2009 11:51 AM | Reply | Permalink
The reform will level the paying field because as it is now, the larger profit margins are made by the ones who have the least ethical standards employing recision as a risk management tool. Once everyone has to play by the same rules, which will make for easier actuarial analysis, the range in prpofoit margins should level, until they figure out another way to game the system, which my cynical side believes is already written into HCR.
September 11, 2009 12:14 PM | Reply | Permalink
Don't set your hopes on lower premiums. At best, they won't increase for a few years. Most likely scenario is the rate of increase will slow. As for prices actually falling... that is scheduled to coincide with the Great Pony Giveaway.
September 11, 2009 1:23 PM | Reply | Permalink
Funny how 'capitalists' like Avishai want to cripple Democratic and progressive health care reform plans before they're even implemented with this cheap talk.
They have a vested interest in this failing. They WANT it to fail. They endorse failing plans. Funny how that happens.
To Avishai, I share my fantasy of what Obama and other Democrats SHOULD say:
I drink YOUR milkshake!
September 11, 2009 11:58 AM | Reply | Permalink
Once we have a public option up and running, we can expand its reach and market power just by gradually tweaking eligibility requirements. That will be much easier than re-inventing the wheel if the co-ops aren't working, but they have become a major new special interest.
September 11, 2009 2:25 PM | Reply | Permalink
Probably lots of Congressional friends and relatives lining up to form co-ops right now, hoping to cash in on those start-up dollars, most of which will go to board members. After three or four years, they will go out of business without ever having insured anyone.
September 11, 2009 4:55 PM | Reply | Permalink