Caveat Emptor – “Let the Buyer Beware”

by Gordon Cooper

From Broader View Weekly, July 31, 2009

Perhaps you’ve had the same experience with high pressure sales people as I have had. I have sat across the desk or listened on the phone as the commission-driven agent gave me the “You better act now” routine. I was warned of the dire consequences if I did not sign Today. It was only after I had been sucked in by their fear-mongering that I took the time to read the fine print of the commitment I had signed. It was then that I learned the validity of that admonition listed in my title. The responsibility lies with the buyer to be wary, to ask questions, and to be skeptical of those things that sound too good to be true.

After visiting the White House propaganda website about the need for Affordable Health Care and listening to President Obama’s orchestrated press conference/speech, I felt the same feeling of pressure I felt each time I was in the presence of an overachieving salesman. There is no time to lose, this is a limited time offer, you must act now, etc.

Fortunately, it seems that our representatives have succeeded in pushing back Obama’s timeline and have stifled his zeal to get his monstrous health care overhaul on his desk before the August recess. But we cannot breathe easy just yet. This dangerous bill still has a beating heart and until we can stick a stake in that beating heart, our economy and our nation’s healthcare industry is at risk.

I will not deny that many of the postulates on the White House website are true. We do have a costly system. There are inequities in coverage and premiums. There is a need for change. However, I believe the cures proposed within this bill would be worse that the disease.

Essentially, Obama’s proposal for a “public insurer” to compete with private insurers revolves around four arguments. They posit that a public entity would: 1) bring down prices by bringing in increased competition; 2) save more money by lowering administrative costs, and because the public plan would not be profit-driven, the savings would be passed on to consumers; 3) because they would represent a larger body of consumers they would receive better deals from drug companies and medical suppliers; 4) the single buyer would be a greater negotiator and would truly get the best price for the services and products.
Each of the above arguments is refuted by evidence to the contrary from both foreign and domestic experiments. So, let’s examine them, shall we?

First of all, we already have competition in the health insurance field. Hundreds of companies currently negotiate for subscribers and for suppliers. That competition allows employers to bargain for plans and premiums that best fit their employees’ needs and their companies’ budget. To bring in a large buyer who has little direct accountability to its shareholders would stifle true competition.

Secondly, the idea that a not-for-profit institution is somehow able to lower costs has not proven true. According to John E. Calfee’s article in the Wall Street Journal, nonprofit firms already exist, including some Blue Cross-Blue Shield plans. Evidence shows that there is not a discernible difference in efficiency or cost-savings. The idea that a government-run program could ever lower administrative costs is laughable. By its very nature, any bureaucracy is rife with cost overruns and ever-increasing budgets. We need only look across the pond to see other nations abandoning state-run enterprises and returning public airlines, phone companies and energy suppliers back to private corporations.

Thirdly, larger numbers do not always get the best deal. Many of our private companies serve more subscribers than Canada’s state-run healthcare. Once a plan reaches over a million subscribers the extra numbers do not reflect a significant difference in costs.

Fourthly, the idea that a single buyer would represent a superior negotiator does not stand up against real experience in other countries. The common pathway taken by a monopsony (when a single buyer negotiates with several sellers as opposed to a monopoly in which one seller negotiates with many buyers) is one in which they set the price and all suppliers must either take it or lose the market. In other nations, such as New Zealand, drug sellers have no incentive to spend the millions needed for research and development, because they know the profit level is predetermined by the government. It is no surprise then, that American companies lead the world in innovation and development of new technologies and drugs. To take away the profit is to take away the incentive, pure and simple.

My space here is too short to elaborate further on the dangers of Obama’s proposal, but for those interested in learning more about what happens when a state decides to give “free” healthcare to its citizens, I would suggest you check out the short-lived plan called TennCare. It was a good idea that went bad when it met reality.
In conclusion, let me repeat the warning in my title: Caveat Emptor – “Let the