Efficiency: Public or Private Sector?

As long as I can remember, Republicans have pushed the meme that Business is efficient and good, while government is wasteful and corrupt.  It’s not surprising that they see government this way, because, when they control it, it is.  But this article by David Morris actually analyzes Public and Private sector efficiency in health care, Education, and Defense, exposing the Republican claim as a lie.

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.

Health

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.

The public sector proved uncompetitive. Private insurers began pulling out en masse. In 2000, more than 900,000 patients were dropped from the Medicare+Choice program.

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.”… [emphasis added]

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This is just the portion on health care.  I strong encourage you to click through and read the sections on education and defense.

Republicans object to the ACA, because it slashes Medicare, they say.  They are lying of course. The savings come not from cutting benefits, but by improving efficiency, and most of all, by eliminating that 14% subsidy for Big Insurance.  The insurance companies don’t want to return to a level playing field, because they already demonstrated they can’t compete.

Truly, there are some things government does best, as long as Republicans are not at the helm.