Public/Private

One of the issues that we need to address in this country is what are the responsibilities of Government vs the Private Sector. We have been transitioning slowly since the 1930s from a system in which the responsibility for these areas were purely handled privately to a system in which the Government plays a much larger role.

If we were going to approach this from an efficiency approach, we have to be able to determine which method costs less. Now, this argument comes down to efficiency vs profit. In order for a private institution to provide a service, it needs to make a profit. In this type of industry, the profit would have to be near 7% in order to attract investors and capital. So if private industry is at lease 7% more efficient than the Government it would make sense to provide these services privately.

Now, most proponents of private industry would argue that private industry is clearly that much more efficient than the Government. They can find plenty of examples of Government waste and Government employees who find ways to game the system. However, most instances of Government waste are caused by political involvement and yes there are employees who game the system, but these same individuals often exist in private industry. Remember, these would have to be large companies with significant infrastructure and bureaucracy whether it is private or Government.

Clearly, the Government lacking a profit motivation starts out with a significant advantage. Additionally, the Government would have no motivation to increase costs. What I mean by that, is that at time in private industry, the amount of reimbursement and profit goes up as cost goes up. In fact, the relative ease in which health care costs can be passed along under our current system is clearly one factor in the continuing increase in those costs.

There is an additional factor that has to be considered in any such comparison. The compensation and bonuses paid to the top executives is pre-profit. There is often a significant difference in the way pay is structured between private and Government organizations. At the lower levels, Government employees often do better than private counterparts especially when benefits are included. However, there is no doubt that as you move up the organization, private managers and executives normally do much better than their Government counterparts, often because of bonuses and other perks.

For a number of years, there have been private vs Government competitions under a program that was designed to increase privatizing non-essential Government services. From the outset, costs had to be added to the Government to offset costs that private industry has to pay, such as cost of capital and taxes, etc. Even with this, most of these competitions were won by the Government organizations. Now, many of these competitions were considered unfair by the losing entities and it is very hard to judge how making a change would have worked out in the long run.

So the data we have is somewhat inconclusive but I suspect it would be very hard for private health insurance to compete. Government obviously has one great advantage, the fact that they have the ability to dictate certain reimbursement levels.

I would like to see this debate focus on the overall cost and not the philosophical issue of whether big Government is good or bad. We need to find the most efficient method of delivering quality services to our population.