Robert Reich, who was secretary of the Labor Department under President Bill Clinton and is currently Chancellor’s Professor of Public Policy at the University of California at Berkeley, thinks government-run health care’s time has come. That’s not a surprise; the question is why his defense of it wouldn’t apply to every sector in the economy?
Reich writes in Salon, “Medicare for All [is] a single-payer plan that builds on Medicare and would cover everyone at far lower cost than the current system.”
Reich provides three reasons for his assertion:
- First, it has economies of scale. The more enrollees, the lower the cost per enrollee.
- Second, Medicare spends almost nothing on marketing and advertising, while for-profit insurers spend a fortune.
- Third, Medicare doesn’t have to earn profits.
Let me address each point.
As an economist Reich should understand the “law of diminishing returns.” Yes, economies of scale help lower costs, but that per-enrollee cost reduction diminishes as the group increases. As a study highlighting Medicare’s hidden administrative costs has shown, large companies with thousands of employees would have almost the same economies of scale as the Medicare program.
On the second point, private insurers do spend more on marketing than Medicare, but so what? Consumers know that there are companies—whether auto sales, grocery stores, retail outlets, etc.—that spend heavily on advertising and yet still have the lowest prices. Advertising is what allows consumers to be value-conscious shoppers looking for the highest quality at the lowest price.
Ironically, Democrats blasted the Trump administration when it cut Obamacare’s advertising budget. Maybe Reich needs to explain to them why they were wrong.
On the third point, Reich is correct that Medicare doesn’t make profits. But in health care no one has shown non-profit health insurers—or non-profit hospitals for that matter—charge less than for-profit ones. The profit motive drives companies to find waste and eliminate it; that seldom happens in government.
Reich’s three points could apply to virtually any sector of the economy. Why shouldn’t the government take over auto manufacturing and sales? It would realize economies of scale, it wouldn’t have to advertise and it wouldn’t have to earn a profit.
But ask yourself, would Government Motors provide a broad selection of great cars at lower prices?
Reich’s arguments are ludicrous—and embarrassing. But we will be hearing them repeatedly because Democrats have made government-run health care one of their top priorities.