Private sector or public sector: Which is more efficient?

[Asher]

Profit maximizing monopolies are only bad because they artificially restrict supply. They are not sources of internal inefficiencies (like failing to offer subsidies for people to adopt behaviors to reduce costs).

"Oligopolies" like those of medical insurers cannot even restrict supply because the supply offered by their competitors is essentially perfectly elastic in anything but the shortest of runs.

KH, I'm sure you're quite a brilliant man when it comes to math and economic models, but you're pretty damn ignorant when it comes to real-world business practices.

I'd love to see you defend the cable/cell phone bills that Canadians suffer thanks to the oligopolies here. I'm sure you'd have some whimsical theoretical nonsense that gleefully ignores the realities of a lack of real competition.

[Asher]

Thanks, but unlike you I'm quite aware of what flaws affect various markets, and I can actually reasonably assess the scale of these distortions. I have done so in this thread.

You and Asher are essentially illiterates.

No, KH. What you've done is harp on theory.

You've very little experience with the real world, with real business methodologies, and real world psychology. If we listened to you, if the whole world had two insurance companies we'd still have the lowest possible rates with the highest possible efficiencies thanks to the miracles of theoretical competition.

[Asher]

You want to destroy my argument, KH?

I want you to explain why at a high level, equivalent health results cost twice as much in the USA with its private system. Everyone keeps avoiding this because it's quite inconvenient for you...

[Asher]

Here's my favourite example of Oligopoly competition.

In 2007, Rogers decided to charge every person (without an overpriced text messaging plan) $0.25 per text message received. This isn't something people can even control. It's patently absurd. To listen to your nonsense, all competitors would have to do is not charge the $0.25, and they'd have a competitive advantage.

What happened in reality? Within a month, all of the other carriers in Canada implemented the same charge and policy.

Oligopoly competition at work.

But hey, if you don't like it...you don't have a cell phone/cable TV/satellite TV/land line...or health insurance, as the case may be. Unfortunately in the US, if you don't have health insurance you're even more ****ed because you pay far more than insurance companies would for the same service.

The US health care system is as far as you can get from a perfect market, which means all of your knee-jerk economic theory becomes suspect at best. Which means instead of reciting theory to counter arguments, you need to use empirical arguments. Unfortunately, all empirical evidence shows the US system to be dramatically overpriced and inefficient.

[KrazyHorse]

You want to destroy my argument, KH?

I want you to explain why at a high level, equivalent health results cost twice as much in the USA with its private system. Everyone keeps avoiding this because it's quite inconvenient for you...

I have no idea what the real reason is (and neither does anybody else), but there are a number of plausible theses:

1) (Most obvious) Canadian health care is essentially purchased through a monopsony. By restricting consumption, the price of equivalent services can be lowered by an amount governed by the scale of the restriction divided by the price elasticity of supply. The price elasticity of supply for doctors' services is relatively low, as it is largely determined by the formation of human capital through a long and arduous process. The savings represented by this process are not true efficiency savings, but are instead merely transfers from one group (doctors) to another (patients/the government)

2) Americans live less healthy lives than Canadians, across virtually all categories. And no, that is not mediated by visits to the GP to tell people that their fat asses should get more exercise, you nimrod

3) American tax treatment of insurance as well as insurance mandates leads to overinsurance (insurance covering all manner of things that are idiotic, e.g. routine expenses; insurance with stupidly low deductibles). This leads to a tragedy of the commons whereby the marginal cost of consumption of health care is not borne by the individual, and leading to overconsumption of medical care (whether that be in quantity or quality). Through the same mechanism as (1) this increases health costs, even on a per-unit basis.

4) (added) Americans are richer than Canadians, and all evidence shows that the health care-income elasticity is greater than 1; thus, even with equivalent "systems" and underlying health you would expect Americans to spend a significant amount more (even as a percentage of income!) on health care than Canadians

[KrazyHorse]

Here's my favourite example of Oligopoly competition.

In 2007, Rogers decided to charge every person (without an overpriced text messaging plan) $0.25 per text message received. This isn't something people can even control. It's patently absurd. To listen to your nonsense, all competitors would have to do is not charge the $0.25, and they'd have a competitive advantage.

Can you please look up some information on market segmentation and price discrimination and then get back to me? You are talking about the ability to exploit market frictions on the order of 1-2% of total expenditure. Nobody denies that there can easily be results at that level which are significant.

The point is that without some kind of plausible mechanism AT THE 50% LEVEL such tiny little frictions cannot explain the difference between the US and Canada in terms of health care expenditures...

[Ben Kenobi]

[KrazyHorse]

That is either a very clever comment on my post, or a generically boring "argument->popcorn" graphic

[KrazyHorse]

Let's do some back of the envelope calculations about each of the effects I mentioned:

(4) first:



Income differences alone explain ~1/3 of the difference

[KrazyHorse]

Lifestyle determinants seem to give around 300$ per-capita differences (proxying solely by obesity; including other factors may increase this estimate)

[KrazyHorse]

Now, the other two are going to be difficult. I need estimates of price elasticity of health care supply and demand, and that's a relatively fuzzy question...in addition, I need to know how much restriction the various public health care providers in Canada actually place on consumption...

[BlackCat]

GAH. This is what happens when I try to get off caffeine.

Still:

$210 billion a year? Shut the **** up!

I admit that I've been lazy using wiki, but according to link the US spent some 2.26 trillion $ on health care in 2007. 210 billion is only 10 % and sounds like a reasonable amount covering profit and administration of the health care insurance industry.

[KrazyHorse]

I admit that I've been lazy using wiki, but according to link the US spent some 2.26 trillion $ on health care in 2007. 210 billion is only 10 % and sounds like a reasonable amount covering profit and administration of the health care insurance industry.

Profit margins are on the order of 3% for health insurers as a whole. Claiming that this and "administration" can magically be disappeared by switching to some other system is sort of silly, though. These are not obvious deadweight costs, just as profits and corporate administration of other sectors of the economy are not.

I'm sure that the profits of Soviet beverage manufacturers were pretty low, but that doesn't mean that they efficiently provided their services...

[KrazyHorse]

Oh, in my response I avoided mentioning factors which on their face affect the US and Canada similarly, e.g. the medical guilds. If somebody has information on why we would expect there o be a differential I'd be happy to hear it.

I don't want to downplay this element, as I was horrified when I learned how the "market" for medical residents works in the US...

[BlackCat]

Profit margins are on the order of 3% for health insurers as a whole. Claiming that this and "administration" can magically be disappeared by switching to some other system is sort of silly, though. These are not obvious deadweight costs, just as profits and corporate administration of other sectors of the economy are not.

I'm sure that the profits of Soviet beverage manufacturers were pretty low, but that doesn't mean that they efficiently provided their services...

3% sounds pretty ridiculous, but rest that for now. If the OP is right and more than half of time is used to handle insurance issues, then the remaining 7% are probably covered - even more.

Wasting time on unnessecary admin is always a deadweight.

It doesn't make any sense comparing health care with ordinary industries.