Why You Want the Government Running Health, Education and Defense
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Unlike the public sector, the private sector is bred for efficiency. Left to its own devices, it will always find the means to provide services faster, cheaper, and more effectively than will governments. ---James Jay Carafano, Private Sector, Public Wars
I suspect the vast majority of Americans would agree with Mr. Carafano. They probably consider the statement self-evident. The facts, however, lead to the opposite conclusion. When not handicapped by regulations designed to subsidize the private sector, the public sector often provides services faster, cheaper and more effectively.
Consider the results of recent privatization initiatives in three key sectors: health, education and national defense.
Alone among all industrialized nations, the US relies on private for profit insurance companies to manage its health care system. The result? The US has by far the most expensive health care system in the world both in total cost and as a percentage of GDP.
But we don’t have to look abroad to evaluate the comparative costs of private and public health systems. Consider Medicare.
Small privatization efforts under Medicare began in the 1980s but did not become full-borne until 1997 when the Republican Congress, with the support of President Clinton, created Medicare+Choice. Secure in their faith that the private is always superior to the public the Republicans agreed to a program in which private insurers would receive the same amount as the service cost under Medicare.
No one should have been surprised. Private insurers have a huge handicap. Their overhead costs-marketing, profits, etc.—dwarf those of Medicare: slightly under 17 percent compared to about 5 percent for Medicare.
How did the Republican Party react to this real world challenge to their foundational belief in the efficiencies inherent in a private enterprise system? They changed the rules. Having proven unable to win in a fair fight, private insurers were now given a handsome subsidy when Medicare Advantage replaced Medicare+Choice. The federal government now pays private insurers on average 14 percent more per member than the same care would cost under traditional Medicare.
The huge subsidy allowed private insurers not only to make a profit but to offer some low cost goodies, like membership to gyms, Medicare doesn’t offer. Today, about 8.5 million Medicare beneficiaries nationwide are enrolled in some form of private Medicare plan—nearly 20 percent of all Medicare beneficiaries.
Astonishingly, having proven that private health insurance costs more Republicans have now made the further privatization of Medicare the centerpiece of their budget deficit plan. Instead of directly insuring seniors their new plan would have the government give them a voucher to buy private insurance. The government would save money because the value of the vouchers would rise at a slower rate than health care costs.
New Yorker business writer James Surowiecki sums up the conclusions of an analysis of the plan by the non-partisan Congressional Budget Office, “seniors would have to spend more and more of their income on private insurance and out-of-pocket expenses, or go without… Ryan’s plan would actually increase the amount of money Americans spend on health care, since private insurers aren’t as good at curbing costs as Medicare. But taxpayers would pay less.”
In 1958, the federal government established a student loan program. The federal Treasury made the loan directly. In 1965, as part of his Great Society initiative, LBJ wanted to dramatically expand the program, but ran up against budget rules that discriminated against direct lending. A direct loan showed up as a total loss in the year it was made, even though most of it would be paid back with interest in future years. A guaranteed loan, on the other hand, which placed the full faith and credit of the United States behind a private bank loan, would appear to have no up front budget cost at all because the government’s payments for defaults and interest subsidies would not occur until later years.