Several blogs have picked up on a posting by libertarian economist Alex Tabarrok (on his blog Marginal Revolution) about his experiences trying to buy an HDMI cable to connect his new DVD player to his TV. He found that all the local stores only sold high priced versions and wondered where the competition was. This is the relevant part for my purposes:
"My best guess is that this is an unusually strong version of the hidden fee model of Laibson and Gabaix. In that model, firms overprice one aspect of service--such as a hotel charging exorbitant rates for telephone service--as an idiot tax. Crucially, the idiot tax is matched by an IQ-subsidy; the price of the hotel room is lower than it would be without the idiot tax--so the idiots don't know to shop elsewhere and the high-IQ types are, in fact, drawn to stores with an idiot tax."
Like his fellow libertarians he is faced with two problems. The first is that competition is obviously not working and the second is that "rational" consumers are not making optimum choices. He can only resolve this by calling them "idiots". They must be the exception from those like him who are highly rational.
Let's apply this conceit to the current debate over health care, especially the potential for competition that a "public" insurance plan should provide. The basic issue is that consumers won't have adequate information to make the best choice. If you are going to be required to evaluate competing plans how will you do it? The example of the Medicare plus plans is instructive, there are so many mix and match options that few people can actually pick the one that is best for them.
Even if you do decide because, say, it covers a particular drug that you are taking, what happens if you need some other treatment in the future that you didn't evaluate?
Then there is the issue of competition. There are HDMI cables spanning a range of prices of at least 10:1. They all do the same thing (in spite of what some technophiles claim). So the lack of price competition in retail stores is an illustration of how supposedly competitive markets can be manipulated. The stores know that there are those who aren't sophisticated enough to shop online, or who want the item now and they use their local, shared monopoly position to avoid competition with one another. We see the same situation with health insurance plans. In most areas there are very few plans to chose from, state regulations keep the options geographically restricted and firms informally divide up territories to avoid having to spend too much on marketing. A public plan will only add one additional choice, and it is likely, that it will only be available to a limited set of people. Medicare doesn't compete with plans for younger people and the premium and benefit features reflect this.
I think this demonstrates that even a "public" insurance option is not going to solve the problems that an insurance-based system uses. On the other hand a treatment-based system, like that used in Canada, does not suffer from this defect. You go in, show your card and that's the end of your payment evaluations. Everything from then on is focused on the appropriate care.
Unfortunately, it appears that the majority of the public, that would like to see a Canadian-style system, are going to be thwarted once again. Just who is running this country? The voters or the lobbyists?