President Obama believes that “healthcare is a right, not a privilege.” So, as promised, he is currently working on a plan to make healthcare affordable for everyone. President Obama wants to create a government-run health insurance plan that would operate beside the private sector of health insurance already in place. The details have yet to be nailed down, but both support and opposition have already raised their voices.
The issue of a public health insurance plan deals with the basic economic concept of competition, and the not-so-basic concept of profit maximization. The article’s author, Reed Abelson, offers almost none of his own explanation or conclusions, but rather offers input from both sides.
Support for a public health insurance plan argues that such a plan would not only make health insurance available for at least most of the 50 million Americans who cannot afford it, but it would also bring more competition into the market. They contend that more competition would result in more fair prices for health insurance, and healthcare effectively.
Those opposed to the plan argue that the government is an “unfair competitor.” Their contention is that the government would have lower costs than private insurance companies.
“It would have a much lower overhead than private plans, with no need to make a profit or spend money on marketing or brokers’ commissions.”
Both sides agree that if the government went through with the plan, the price of private health insurance would have to fall to compete with the government plan. The opposition continues by saying that prices would fall so much that the private sector would be driven out of business altogether. Even if a private firm offered insurance plans at the point where marginal cost was equal to marginal revenue, the generally recognized point of profit maximization, the market price would eventually fall so low that shutting down altogether would be the least costly choice.
Neither side is totally wrong. Economists generally do not regard competition as a bad thing. But the opposition’s analysis is not out of tune with economic analysis—this particular style of competition could potentially cause serious harm to the health insurance industry. The fact is, not enough details are set for anyone to make a complete analysis. Only time will tell.