John Stossel
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  • November 2, 2009 04:49 PM EST by John Stossel

    Profit

    Last week, Bill O’Reilly had me on The Factor to talk about the health care bills. He correctly pointed out that a public plan might obliterate private alternatives. But I was puzzled by the reason he gave:

    [A] taxpayer funded company would have a huge advantage because profit motive is nonexistent. The Fed fix would be in.

    I understand the logic. Last quarter, insurance companies averaged a 2% profit. (in recent years, they made six percent.) In theory, a non-profit government insurance company would be able sell insurance for 2% less, therefore beating out the for-profit competition.

    But that’s not how the economics work out in real life.

    The quest for profit actually lowers costs.

    In categories where competition is allowed, the US Postal Service has just a 16% market share - behind UPS and FedEx, even though FedEx and UPS make a profit. That’s because FedEx and UPS offer better deals and better prices. Pursuit of profit turns out to be the motivator that gets companies to innovate in ways that cut costs. Non-profit government rarely does that.

    In fact, non-profit government has an amazing ability to raise costs. New York bookies risked arrest to take horseracing bets away from the racetrack. They took the risk because the profits were huge. To put them out of business, the state government created OTB, an off-track betting corporation. The NY Times quoted OTB’s first director:  organized crime would lose the revenue... the city's financial problems would be solved, for OTB would produce $200 million or more in its first year to pay cops, techers and firemen, and keep the subways running."

    But government management is so bad that today OTB loses billions.

    Here’s another way of thinking about the extra “costs” that go with pursuing profit:

    Ophthalmologists once charged $400 to fit contact lenses. When I asked them why it couldn’t be done more cheaply, they told me that lenses just had to cost that much to cover the cost of the lens and the fitting—after all, it’s a delicate job.

    At the time, medical associations and state licensing boards had declared price advertising to be unethical . They said it was “unprofessional.” But then the FTC declared the ad ban an anti-trust violation, and threw it out. Doctors shrieked: “prices will rise, because now we’ll have to add the cost of advertising to our overhead!” The Chicago Tribune reported that "[Ophthalmologists are] afraid advertising will raise eyeglass and contact lens prices, lower quality, and push many small retailers who can to afford to advertise out of the business." But the opposite happened. Ophthalmologists – looking for profit – bid down prices to attract customers. They got more efficient. Now we get contacts safely fitted for just $50.

    Back to health insurance: the biggest health insurers in most states are already non-profit (like Blue Cross Blue Shield). Yet they are no cheaper than for-profit plans. It’s not the absence of profit that would give a public option an unfair advantage.

    Still, Bill is right in saying that “the fix would be in.” Pelosi-Care would have an unfair advantage because government cheats. They would cheat in two ways:

    1. A government corporation can borrow money more cheaply. After all, it’s the US government—lenders assume they’ll be paid back—even if government inflates the currency by just printing more money. Pelosi Care can borrow for 3% when a private insurance company must pay 3.5%. That’s not fair.

    2. Pelosi-Care will be propped up with subsidies. Congressmen like Alan Grayson say that " the Government will not subsidize." But don’t believe it. When Grayson’s mother is told that she can’t have a hip replacement, you can bet that the Senator and his colleagues will get an “emergency loan from the Treasury to “temporarily” cover the poor people who are being deprived.” And the loan won’t be temporary.

    Remember, the Post office was supposed to break even. So were Amtrak, Fannie Mae and Freddie Mac, and the Federal Flood Insurance program. But now all are propped up by subsidies.

    Federal flood insurance requires $1.3 billion a year in subsidies, according to the CBO.

    Amtrak gets $1.5 billion a year

    Fannie Mae and Freddie Mac had to be bailed out with $100 billion, and the government has pledged another $300 billion.

    It’s not a level playing field. Government doesn’t play fair.

    I’d rather rely on the profit motive.

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DMK

The question then is, how do we reduce healthcare costs? The problem with the status quo is that healthcare costs are skyrocketing. I am a small business owner. My healthcare insurance premiums have tripled in the past ten years. Our current group policy for a family costs $1600 per month. I'm so tired of political posturing and no results. This problem is killing small business in this country. It is time for a solution.

November 4, 2009 at 5:45 pm

Aardvark

I am curious as to why government operations in this country suffer from some many problem yet in some other countries, they seem to be able to make it work. A good example is public auto insurance in Manitoba, Canada. It is run by the government but is 100% funded by the motorists. The rates are competitive with private insurance that is still available. Right now, Ontarians are grousing that their auto insurance rates are going up yet again (no public option) and are wondering why.

November 3, 2009 at 12:00 pm

webweb

Healthcare Reform: A Two Page Bill Based on the principles of liberty, limited government, and free markets, this bill has four points: 1. Remove restraints on purchase and provision of health care. 2. Eliminate coverage mandates. 3. Equalize tax treatment of individual and business purchase. 4. Allow contractual limits on liability in health care. The bill, including citations of constitutional authority, fits into two pages. Find it at http://www.hereur.com/web/healthcare.pdf.

November 2, 2009 at 11:34 pm

Bill

I have HOPE in CHANGE. BHO and friends will change things quickly... and run the ship aground at an ever increasing rate. After the crash we can finally put the socialist agenda behind us and get back normal competition and innovation. Hurricanes and fires are very healthy features of natural systems.

November 2, 2009 at 11:17 pm
(1 Reply)

Dan D.

A very important third way of cheating is missing: government sets the rules by which all healthcare runs, not just government healthcare. Even if, miraculously, the program doesn't need subsidies (a bad bet to make), the private sector will be prevented from competing. Even if no new regulations are added (a worse bet to make), the existing regulations plus the addition of a public plan will be sufficient to drive all but the largest insurers out of business quickly, with the biggest following.

November 2, 2009 at 10:50 pm

Roy

Most health care facilities are non-profit, but that doesn't mean that they can lose money, even with government subsidies a hospital cant lose money year after year and still maintain staff and keep up with technology.

November 2, 2009 at 10:45 pm

web

Health Care Reform: A Two Page Bill Based on the principles of liberty, limited government, and free markets, this bill has four points: 1. Remove trade restraints on purchase and provision of health care. 2. Eliminate coverage mandates. 3. Equalize tax treatment of individual and business purchases. 4. Allow contractual limits on liability. The bill, including citations of constitutional authority, fits into two pages. Find it at http://www.hereur.com/web/healthcare.pdf

November 2, 2009 at 10:29 pm

'Em

http://www.ssa.gov/OACT/TRSUM/index.html Here's a link to report prepared by Geitner this year. I have been concerned about the "rush" to change health care/insurance given the economic situation and have been trying to figure out since Pelosi announced it would cover 96% of Americans. 96% of 308 million = 295.6M = 12.4M uninsured despite taxes/fines/fees. Is this really to fund social security/medicare etc?

November 2, 2009 at 8:31 pm

Tim Seretis

COMMON SENSE Sure profits are good, and that is the purpose of business, BUT!!! The profits earned need to distributed wisely, so the workers have a living wage, the business can invest in new technologies, and the greedy CEOs can have some pocket change as well. In order for everyone to survive and move forward in the years ahead, humanity must learn the concept of sharing and leave the selfishness and greed behind. The question is not where we are, but what direction we are heading, and with that in mind, tomorrow begins today in making people aware, that the we have two choices to make: "United States of America, Revolution or Evolution", and reality is that the U.S needs, and must evolve in order to move forward. Selfishness, greed must be replaced by common sense and a concept of fairness and sharing. I am not against making profits, and I am sure I will be called all kinds of anti-American or Socialist, but lets face reality, do the CEOs really need, let's say a figure, $t10 million dollars a year in salary? Can they not live on $5 million a year and put the rest back into payroll and create a living wage?

November 2, 2009 at 8:14 pm
(2 Replies)

LAD

I'm confused. If Pelosi's healthcare plan is to be paid for entirely out of premiums (i.e., not subsidized), why is it that her bill will cost over $1 trillion in additional tax dollars? Also, government cheats in a third way. They get to set the rules for their competitors in the healthcare field.

November 2, 2009 at 8:09 pm

Kathy

I send letters via FedEx. I find it more convenient to send overnight or 2 day with FedEx. For about the same price, you get confirmation of delivery. I believe that the post office started offering Priority Mail, etc in response to losing business to FedEx and UPS.

November 2, 2009 at 7:57 pm
(1 Reply)

cb750

John - you are technically wrong about the post office. Fed ex and UPS only compete when it comes to packages. The US post office has a monopoly on letter delivery and so it has 100% earnings over fed ex and ups. So the post office has essentially eliminated competition in that area... and they run in the red. Also to accomplish its goal for health care, the gov will have to use coercive force which violates libertarian non-aggression. Gov WILL create a monopoly out of health care.

November 2, 2009 at 5:17 pm
(2 Replies)

jonat

In response to "Public Option" blog of 10/23, I wrote that they(democrats) change the rules of the game when they get involved. They put up barriers to private interprise, also. To them, this is not cheating; it's just their rules. It's an interesting problem. Will capitalism still be able to win against a fixed game? Somehow, I think it will, eventually.

November 2, 2009 at 5:09 pm

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  • John Stossel joined FOX Business and FOX News in October 2009. His show, Stossel, airs on the Fox Business Network on Thursdays at 8 p.m. ET

    He is the New York Times best-selling author of Give Me A Break and Myths, Lies and Downright Stupidity. His "Give Me a Break" commentaries take a skeptical look at a wide array of issues, such as education, the economy, parenting, and more.

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