Adam Smith and the 'public option'

AP Photo/Susan Walsh

(This article also appears on the Examiner.)

It is foreboding of trouble when a proponent of an idea invokes the name of an ideological opposite in order to garner support.  And so it was when in desperation Sen. Jay Rockefeller ventured boldly about his public option for health care, “I think Adam Smith would have cooked up this amendment.” 1

The amendment failed in Committee 15-8 and the public option seems to be dead in the Senate version of the health care reform bill. 

But why let Smith-ideation go down with it?  The Democrat from West Virginia may be on to something. 

Certainly Adam Smith would not have “cooked up” any such thing as a public option.  The Heritage Foundation observes that Smith wrote, “The policy of Europe [for government chartered corporations] occasions a very important inequality in the whole of the advantages and disadvantages of the different employments of labour and stock, by restraining the competition in some employments to a smaller number than might otherwise be disposed to enter into them.” 2

If Smith lamented a “smaller number than might otherwise be disposed” of competitors resulting from government meddling in private business, we might deduce his support for some greater number of competitors that a completely free market would dispose.  And that is precisely the idea that Republicans—perhaps now with Adam Smith’s newest fan, Rockefeller—should advance.  

Surprisingly—or perhaps not surprisingly, depending on your level of cynicism about Congress—nothing in the plans proposed by either chamber embrace free market solutions.  Each one seeks to increase demand for services by forcing the uninsured and poor into a health care system that is already stressed.  No proposal addresses cost stabilization by market competition in either the health insurance or health care markets.  What will happen, then, when 30 to 46 million new participants (depending on how one accounts for illegal immigrants) are given by largesse or start to buy services from a doctor population that now serves one in every 416 person as compared to one to 300 for France, Germany, Sweden, and Australia? 3

No proposal addresses the 50 state-wide oligopolies that characterize the current health insurance market.  In 2006, The New York Times wrote, “The Government Accountability Office, an investigative arm of Congress, said that the largest insurer had 43 percent of the market for small group coverage in a typical state, up from 33 percent in 2002.  In nine states, the largest carrier — a Blue Cross and Blue Shield company — has more than 50 percent.” 4  It sounds like state governments have already treaded where Federal government wishes to go, with the result of fulfilling Smith’s prediction. 

No proposal gives incentive to individuals and small businesses to buy insurance.  Rather, they impose an array of penalties and tax manipulations that add unnecessary complexity as they empower the IRS to enforce the reduction in individual freedom under threat of additional penalties and even incarceration.  Besides the lack of choice in insurance, the problem is a form of corporate welfare represented by the tax deduction given employers to buy insurance on behalf of their captive members.  In effect, those who do not work for large corporations are subsidizing those who do.  A Kaufman-RAND study found, “… between 2000 and 2005, the economic burden of providing insurance increased for employers, particularly for the smallest firms.” 5  Why not, therefore, give the tax incentive directly to individuals and allow them to buy insurance from any provider, anywhere in the country.  Opening the playing field while leveling it allows markets to work efficiently. 

Finally, with the public option defeated, at least in Committee, where do we leave the poor?  No great nation can turn its back on the less fortunate and claim greatness.  Economist Arthur Laffer suggests we offer the poor vouchers for medical insurance that they may trade on the same open market (if we can open it) accessible to the rest of us, preferably through Health Savings Accounts. 6

Liberating the market for health insurance across states, ending the corporate subsidy, encouraging individual savings and responsibility with incentives, and caring for the poor by fostering education, participation, and self-reliance … now there is something Adam Smith would have cooked up.

---

[1] Klein, Philip. "Rockefeller: Adam Smith Would Have Supported Government-run Health Care", American Spectator, 29 Sep. 2009,  http://spectator.org/blog/2009/09/29/rockefeller-adam-smith-would-h 

[2] The Heritage Foundation, 30 Sep. 2009, Would Adam Smith Support Government-Run Health Care? http://blog.heritage.org/2009/09/30/would-adam-smith-support-government-run-healthcare/

[3]OECD Health Data 2009, http://www.oecd.org/document/30/0,3343,en_2649_34631_12968734_1_1_1_37407,00.html

[4] Pear, Robert. "Loss of Competition Is Seen in Health Insurance Industry", The New York Times, 30 April 2006, http://www.nytimes.com/2006/04/30/us/30insure.html

[5] Kauffman-RAND Institute For Entrepreneurship Public Policy, 2008  http://rand.org/pubs/technical_reports/2008/RAND_TR559.pdf

[6]Laffer, Arthur. "How to Fix the Health-Care ‘Wedge’ ", The Wall Street Journal, 5 August 2009, http://online.wsj.com/article/SB10001424052970204619004574324361508092006.html