The Post Office, FedEx and UPS Model for Health Insurance

The New York Times posted the transcript of President Obama’s Tuesday, June 23 news conference. I thought he expressed the right balance on Iran’s political situation and was refreshingly articulate and direct on the need for a government run health insurance plan for consumers. The President used the Republicans' own logic to defend the need for a government option.

President Obama: “Why would it drive private insurance out of business? If -- if private -- if private insurers say that the marketplace provides the best quality health care; if they tell us that they're offering a good deal, then why is it that the government, which they say can't run anything, suddenly is going to drive them out of business? That's not logical.”

President Obama: “But just conceptually, the notion that all these insurance companies who say they're giving consumers the best possible deal, if they can't compete against a public plan as one option, with consumers making the decision what's the best deal, that defies logic, which is why I think you've seen in the polling data overwhelming support for a public plan.”

The President came just short of refusing to sign legislation that did not contain a public option, indicating he will be expending unlimited political capital to get it. The logical extension of his argument would be if FedEx (FDX) and UPS have prospered by competing with the Post Office, why can’t Aetna (AET), CIGNA (CI), Humana (HUM), UnitedHealth Group (UNH) and WellPoint (WLP) annihilate any competition from government run health insurance. Consider that FedEx and UPS are winning after the Post Office had over a 100 year head start.

The need to make a profit did not hinder the success of FedEx and UPS, and all these private insurers have a running start on the government. If profits are a disadvantage in competing then why did state governments allow nonprofit Blue Cross plans to be converted into the for-profit WellPoint colossus? If WellPoint cannot compete with the government then let Blue Cross go back to being nonprofit. Was WellPoint’s argument that a for-profit insurer can provide better service and more value to the consumer than a nonprofit invalid?

Medicare has an extremely low overhead for the level of insurance it writes. Yes it does incur a great deal of fraud, but more money is saved in overhead than spent in fraud. Private insurers can thrive alongside of a government plan if they balance the cost expenditures of enforcement with the cost savings of enforcement, and run leaner operations. The private insurers can leave the marketing and sales to the proposed exchanges, eliminate medical underwriting and start contracting with medical providers by the patient rather than by the service.

A certain amount of enforcement is necessary to prevent excessive fraud, but private insurers waste far too much money on administration for the benefits they provide. This is why they can only survive in an environment where their competitors do the same. The President wants to break this cycle using a government run health insurance plan as his tool. Once the environment changes, the private insurers will change and continue to be profitable.

The President’s argument could be equally applied to the pharmaceutical companies spending more on sales and marketing than research. But President Obama is not yet ready to slay that horse.

The real question the private insurers must answer is whether Medicare is more competitive because of lower overhead or lower payments to providers? I believe the emphasis on lower provider payments is far overstated. Medicare is more competitive than private insurance because it has far less fat.

No disclosures.

Comments

[scottsievers:]

If you are uninsured and does not have insurance, you should check out the website UninsuredAmerica.blogs... - John Mayer, California

Jun 24 03:41 AM

[Jim in Virg...:]

There are many doctors who no longer take new medicare patients thus creating a two tier system of care which in my view is a negative. The quasi government entity Freddie Mac has had to be infused with taxpayer funds in order to stay alive many times. Government health care will likely have the same option whereas the private sector must raise prices or go out of business. Rationing of health care will happen whether private or public systems are employed. The wealthy will have the best care and the poor will have the worst care.

Jun 24 06:07 AM

[JerseyMike:]

I thought Obama's comments on Iran have been “pragmatic” but also incredibly timid and demonstrate a lack of leadership. John F. Kennedy, when confronted with a similar situation, famously stated “Ich bin ein Berliner” to show his solidarity with those facing oppression. Obama is no JFK (indeed on foreign policy he is more like Carter).
I don't think the USPO vs FedEx analogy is correct. FedEx did not build out a system that most people were happy with and then the government came along whit the post office. Instead, the post office existed and did an incredibly poor job of meeting client needs. Therefore, the government allowed FedEx and others take over certain segments of the USPO's business - e.g., the overnight delivery service (FedEx by law cannot compete for regular mail service). So if the idea is that the government can build an incredibly crappy health care system so that in the future it will allow private companies to do better - that would be your USPO vs FedEx analogy.

Jun 24 06:39 AM

[Leftfield:]

The government has already built this crappy healthcare system. It's full of proceduritis, unneeded tests, arms races with the most expensive equipment, prescription abuse by the providers, all of which is to cater to the shrinking slice of people with gold-plated benefits.
It needs to be fixed. I favor incentives of good private decisionmaking. Looks like healthcare is a prime example of the many segments of this country's misallocated economy that are fighting over turf in an unsustainable Alice in Wonderland system that is impossible to sustain without completely disfiguring this once-great country, instead of adding constructive input.

Jun 24 07:53 AM

[The Simple ...:]

The problems with healthcare inefficiency amount to two basic principles, which remain the same whether provided through public or private systems:

(1) The systems pay for inputs rather than results, which only produces an incentive for consumption of resources, and (2) third party payers result in consumers who have no incentive to moderate consumption - something analagous to an "all you can eat buffet" type of situation (see for example Arnold Kling on health care).

Of course, we might also mention the abysmal personal health habits of a sizable portion of the US population - many of whom are the same people who can ill afford medical care or insurance premiums.

Jun 24 09:09 AM

[JerseyMike:]

I have several problems with the government getting involved in healthcare. First, I detest the repeated use of a false "crisis" to mandate a government takeover of an industry. Let's stop calling it a crisis. It is no more a crisis today than it was a year ago. Second, I have a real problem that such large government programs are being rushed through Congress without any meaningful debate or review of the plan. Clearly, the administration is trying to ram what it wants down our throats while one party controls both houses of Congress and the White House. If the administration is right - then let its plan be openly debated. Let them have the courage of their convictions rather than use false fear mongering to justify the passage of such broad sweeping legislation without a general understanding of what it will entail and how it will be paid for. Third, I detest being asked to pay even more taxes. The tax burden is presently burdensome. The taxes necessary to carry out what is proposed can only make things far worse.

On Jun 24 07:53 AM Leftfield wrote:

> The government has already built this crappy healthcare system.
> It's full of proceduritis, unneeded tests, arms races with the most
> expensive equipment, prescription abuse by the providers, all of
> which is to cater to the shrinking slice of people with gold-plated
> benefits.
> It needs to be fixed. I favor incentives of good private decisionmaking.

Jun 24 09:37 AM

[Dialectical...:]

JerseyMike,

It has been said that the definition of "minor surgery" is surgery on someone else. It never feels minor when it happens to you. I would offer the same observation about the health care "crisis." You don't think there is a crisis. Someone who has been without insurance (and was last year and the year before that) may feel differently.

The benefit of providing public health insurance needs to be seen partially for what it can prevent. Preventative care is the cheapest and most effective care and many people are not getting it and are in fact driving up costs for all Americans (because the cost of treating the uninsured is passed on by the hospitals to everyone else obviously, just like the way credit card companies pass on the cost of defaults to the rest of their cardholders). Public schools aren't the greatest thing in the field of education, but if they didn't exist, we'd have a bunch of folks who got NO education who would burden the system with their lack of jobs skills and their propensity to wind up in jail for crimes (both stealing to stay alive and the varous "boredom crimes" common to idle and unemployed). Public education is a public expense that protects the fabric of society.

Something needs to be done -- and should have been done years or decades ago. My biggest argument for allowing this idea (a public option) to move forward is that we have allowed folks to stall so long, claiming there was no problem with the current system or that alternatives were not sound, that we have done nothing. And in the end the question boils down to whether you see healthcare as something we should endeavor to provide at least in some form to all (as in public education) or whether you feel there is no risk or expense in continuing to allow growing millions to live uninsured. It may not seem like a crisis if you have access to good health care. But when you're the one who is affected, just as with the saying about surgery, it can seem a darn sight more severe.


On Jun 24 09:37 AM JerseyMike wrote:

> I have several problems with the government getting involved in healthcare.
> First, I detest the repeated use of a false "crisis" to mandate a
> government takeover of an industry. Let's stop calling it a crisis.

Jun 24 11:15 AM

[Evaluator:]

C-R-I-S-I-S Sorry Prez, but me thinks you cried wolf too many times.
Are you in a mid-life C-R-I-S-I-S.
In your mind, EVERYTHING is a C-R-I-S-I-S, solved by throwing obscene amounts of money at them, without thouroghly debating the pros and cons, or thinking of alternatives.
The first thing that comes to mind to help lower medical cost is TORT reform. The second thing that comes to mind, will the millions of illegal aliens in this country be covered, and am I expected to pay for their health care? (and why should I??) I'm sure there are almost limitless suggestions for health care reform to lower the costs. Are you willing to listen??
Before setting a CRISIS mode dead line for passage, let the American people have an "honest" overview of the nuts and bolts of the proposed plan: total costs, how is it payed for, is there a co-pay, who is and isn't covered, what medical procedures are and are not covered, who makes medical decisions, who is responsible for oversite?? etc. Will my Congress person be allowed time to read the bill before voting on it?? If you are expecting me to support your plan, I need information!!
If you expect to have any credability or public support, let's be honest with the American people. Where is this new transparency you talked on the campaign trail. There was no room for "lobbyist" in your administration on the campaign trail. What happened??
I voted for "change you can believe in" last November, but I'm becoming more and more skeptical. It's looking more and more like "change you'll be deceived in." Let's slow the CRISIS down and put some thought in it. Piss Poor Planning on Your Part Does Not Make a C-R-I-S-I-S on My Part. I'm happy with my current private coverage, and I'm happy with my doctor. Do I really get to keep them under your plan??

Jun 24 12:13 PM

[Pwuff:]

Steinberg said "I believe the emphasis on lower provider payments is far overstated. Medicare is more competitive than private insurance because it has far less fat." This i a question that can be answered with research. "Belief" has no place in this discussion. Doctor's who get out of serving the Medicare population do so for a reason, and any elderly person can tell you about the struggle to find a new Doctor after his old one has retired or quit the business.

Many countries have nationalized healthcare- not just Britain and Canada. I want to see research that compares these systems in cost per capita, cost compared to age demographics, and some facts about the health profiles of each country. People, lots of nations have worked with this- we don't have to craft policy blindly.

Now, imagine the fate of the first politician who says, "Let's learn from Taiwan (or Sweden...whatever)" It isn't pretty, is it?

Jun 24 01:09 PM

[Elkhart:]

Be serious Mr Steinberg. The USPS and FedEx are not allowed by law to deliver 1st class mail otherwise the USPS would not exist. The USPS is protected from lawsuits and many other government perrks and protections that are not afforded to FedEX and UPS. Understand how things really work before manking such uninformed comparisons.

Jun 24 04:04 PM

[bevus:]

Ya, and when a Doc can't make a buck for dealing with "those" type of payments, they "over charge" the rest of the clientel = private insurance. Therefore this expansion of a public option, deceases care by attacking docs (again) and disensenting the profession, when the issue is not, so much, admin (or profits), but RX, proceedures and outpatient.


On Jun 24 01:09 PM peregrina wrote:

> Steinberg said "I believe the emphasis on lower provider payments
> is far overstated. Medicare is more competitive than private insurance
> because it has far less fat." This i a question that can be answered
> with research. "Belief" has no place in this discussion. Doctor's
> who get out of serving the Medicare population do so for a reason,
> and any elderly person can tell you about the struggle to find a
> new Doctor after his old one has retired or quit the business.<br/>
>
> Many countries have nationalized healthcare- not just Britain and
> Canada. I want to see research that compares these systems in cost
> per capita, cost compared to age demographics, and some facts about
> the health profiles of each country. People, lots of nations have
> worked with this- we don't have to craft policy blindly.
>
> Now, imagine the fate of the first politician who says, "Let's learn
> from Taiwan (or Sweden...whatever)" It isn't pretty, is it?

Jun 24 05:05 PM

[donzelion:]

Let's expand the basic logic Steinberg offers.

Police are the primary line of anti-criminal protection: is it possible for private security guards to "compete," even though their hands are relatively tied (can't arrest or shoot people)?

State/federal/municipal sources are the primary source for road construction in America. Can private toll road operators compete?

Every state offers its own higher education system in America, most funded in part by taxpayers. Can private universities compete? (Can they do that at the K-12 level? Quite often - and even without vouchers).

A government competitor entering the field threatens to catch the low-hanging fruit (high volume, low value stuff), which will squeeze margins for many existing players. Yet with 50+ million Americans uninsured, it's not like they're taking customers away, is it? Steinberg's (and Obama's) point that private industry can compete and defeat government in numerous niches is sound, and readily demonstrated in many other contexts.

Jun 24 05:10 PM

[JerseyMike:]

Every coin has two sides. You cannot speak of the benefit of public health care without looking to the problems caused by public health care. The first of which is the cost. Only in some dream world will providing free "preventative care" reduce health care costs. In reality, as the OMB has estimated, the cost will be $1.6 Trillion in tax dollars that are not presently be collected (e.g., deficit spending). And, that $1.6 Trillion will only pay for about 40% of the uninsured in this country. Doing the math, it would cost in the neighborhood of an extra $3.5 Trillion to cover everyone. From whom are you going to collect those taxes? We could move on and talk about the need to ration health care so that people cannot get needed procedures. But, I think you get my point.

On Jun 24 11:15 AM Dialectical Materialist wrote:

> JerseyMike,
>
> It has been said that the definition of "minor surgery" is surgery
> on someone else. It never feels minor when it happens to you. I
> would offer the same observation about the health care "crisis."
> You don't think there is a crisis. Someone who has been without
> insurance (and was last year and the year before that) may feel differently.

Jun 24 05:22 PM

[User 422955:]

Perverted competition adds enormously to the cost of health care. By 'perverted competition' I mean that doctors and hospitals compete for patients, pharmaceutical companies compete for doctors' prescriptions, medical equipment manufacturers compete for doctors' requests that hospitals buy the one that is only slightly better than the one they have, etc. In 'ordinary competition,' the consumer whose dollars are being competed for is the same as the consumer who pays the bills. In healthcare, the ultimate consumer is the insurer (public or private) who has little choice in what the intermediate consumers (mostly doctors and patients) buy.

It is no wonder that the US spends a higher proportion of GDP on health care than any other nation -- often for similar or inferior results. It is no wonder that health care inflation is almost always higher than general inflation.

So, evaluator and Jersey Mike and all you other anti-mandatory health care critics: The crisis is that health care is the beast eating our GDP!

Jun 24 08:43 PM

[ed45679:]

There are large numbers of people who refuse to join their employers plan. If your employer offers, you should be required to take part in it. For low wage earners, off the books and independant contractors, the government could require the insurance companies to offer a basic plan. At least you would have coverage if you got cancer or a severe accident. And for the unhealthy, maybe an assigned risk type policy. Require everyone to pay in. If you go to college, most require some coverage and you pay if you can't provide proof of insurance.

I know of many people who have chosen not to take their benefits at work, prefering to spend their excess take home pay on cigarettes and beer - why the hell should my coverage be tampered with to provide them with healthcare.

What is working for the majority shouldn't be scrapped or tampered with. Find a way to insure the 42 million without screwing with my healthcare.
Also, cap outrageous medical malpractice awards. So many doctors are afraid of being sued that they over order tests and over prescribe antibiotics... more waste.

Jun 24 09:28 PM

[Dialectical...:]

JerseyMike,

I respect that you don't want to shoulder the burden of the enormous expense of health insurance. But it is a fact that preventative care saves money. The cost of helping a diabetic treat his or her illness is way cheaper than the cost of dealing with advanced complications. The cost of routine cholesterol screening and blood pressure control is way cheaper than treating a heart attack. Acting early saves money.

And I think that is where we should focus. I'd be all for a public option for a low co-pay check-up and basic test coverage with catastrophic (get run over by a bus) coverage a large doughnut hole in the middle. It does not bother me if rich people get better health care than poor. Why would I find that shocking, because they get better education, better food, and more exciting vacations too (in general of course). Being rich is better than poor, most people agree. But SOMETHING needs to be done to help poor (and even just the not well off) get some basic medical care when they are sick. And if that means society needs to come up with a way to pay for this, then that doesn't bother me. Rich people have a right to be well off, but basic human needs are something elightened societies try to provide for all its members. And making a basic plan available would help millions without costing trillions.

We shouldn't assume we can provide cadillac health care for all, and I can see why the numbers you quote offend your sensibilties. Thanks for your perspective.




On Jun 24 05:22 PM JerseyMike wrote:

> Every coin has two sides. You cannot speak of the benefit of public
> health care without looking to the problems caused by public health
> care. The first of which is the cost. Only in some dream world will
> providing free "preventative care" reduce health care costs. In reality,
> as the OMB has estimated, the cost will be $1.6 Trillion in tax dollars
> that are not presently be collected (e.g., deficit spending). And,
> that $1.6 Trillion will only pay for about 40% of the uninsured in
> this country. Doing the math, it would cost in the neighborhood of
> an extra $3.5 Trillion to cover everyone. From whom are you going
> to collect those taxes? We could move on and talk about the need
> to ration health care so that people cannot get needed procedures.
> But, I think you get my point.
>
> On Jun 24 11:15 AM Dialectical Materialist wrote:

Jun 24 09:53 PM

[long roh:]

There are many poor people in this country that use the ER as their FREE doctor's office (for both preventable, serious problems and minor problems that they have no business coming to the ER for). This is a huge waste of resources. Who pays for it right now? You do, through ever-increasing health care costs. If we drive those costs out of the system, the savings to current consumers will free up money to be spent elsewhere and, yes, to pay taxes.

Face it: as long as hospitals are required to treat people who cannot pay, you are going to foot the bill. Why not allow those people to go see a family practitioner for sick and well visits rather than dumping them into the ER for their sniffles and preventable problems? The only answer seems to be an aversion to having the government do overtly what is already happening in a subtle (and inefficient) way.

On Jun 24 05:22 PM JerseyMike wrote:

> Every coin has two sides. You cannot speak of the benefit of public
> health care without looking to the problems caused by public health
> care. The first of which is the cost. Only in some dream world will
> providing free "preventative care" reduce health care costs. In reality,
> as the OMB has estimated, the cost will be $1.6 Trillion in tax dollars
> that are not presently be collected (e.g., deficit spending). And,
> that $1.6 Trillion will only pay for about 40% of the uninsured in
> this country. Doing the math, it would cost in the neighborhood of
> an extra $3.5 Trillion to cover everyone. From whom are you going
> to collect those taxes? We could move on and talk about the need
> to ration health care so that people cannot get needed procedures.
> But, I think you get my point.
>
> On Jun 24 11:15 AM Dialectical Materialist wrote:

Jun 24 10:39 PM

[Stephen Fra...:]

stupid comparison.

fedex and ups prospered because their superior services are easily affordable, often cheaper than the inferior USPS, and lead to greater profitability for businesses.

free, public health insurance would cause profit-seeking companies to abandon the superior for-profit insurance to maximize their own profits while leaving employees holding the bag.

Jun 24 11:11 PM

[bcncv:]

Comparing the health care plan to Fedex vs. USPS doesn't make much sense. There is competition because the USPS has to pay its own way. When the post office runs out of money, they have to increase rates.

Conversely, socialized health care is actually paid for (in some manner or another) by those are already insured. Whether it is structured as a direct tax or indirect tax is irrelevant.

A more apt analogy would be the federal government putting a tax on all FedEx packages, and giving that money to the post office. This isn't creating competition, it is destroying it.

If Obama was planning a public option that was 100% funded by plan participants, then it would be true competition. I have not seen ANY proposal by either political party that would be structured in this manner.

Jun 25 02:23 AM

[User 436433:]

Just imagine 20 billion dollars per month for IRAQ .....in a neverending war ,,,,pathetic and no healthcare for 50 millions AMERICANS ......whats the logic..?????

Jun 25 02:36 AM

[Dialectical...:]

Stephen,
We often hear the argument that if corporations pay lower taxes, they use this savings to hire workers or to compete by luring the best workers with higher compensation.

I can't square this argument (which I believe has some merit) with the idea that companies would bale out of their costly (but good) health insurance plan for a cheaper (but less good) public insurance plan. It seems some companies would save money for sure. But wouldn't that saved money be used to hire more workers? Or wouldn't many companies want to retain their better insurance packages as a way or recruiting and retaining top talent?

"Let corporations save money by lowering taxes and they will stimulate the economy" is what we hear all the time. Why wouldn't this apply if they saved money by lowering health care costs?


On Jun 24 11:11 PM Stephen Frankola wrote:

> stupid comparison.
>
> fedex and ups prospered because their superior services are easily
> affordable, often cheaper than the inferior USPS, and lead to greater
> profitability for businesses.
>
> free, public health insurance would cause profit-seeking companies
> to abandon the superior for-profit insurance to maximize their own
> profits while leaving employees holding the bag.

Jun 25 11:45 AM

[simpleton:]

How well would UPS and FedEx compete with the USPS if the USPS could fix fuel prices at 70% of market level and subcontracted the pilots and drivers at 70% of their standard billable hours, while UPS and FedEx are stuck at full market overhead rates?

Now, that sort of a scenario would provide a closer analogy.

If the administration's public offering reimburses at Medicare, or worse, Medicaid rates, the provider community will still not allow private insurers to reimburse equivalently. In fact, as more employers choose to save money by dropping group coverage to let their employees fall into such a private plan, upward pressure will increase in the underlying cost-structures in the private insurers.

Competition with the Fed is not really competition for healthcare and it isn't even a for-profit/nonprofit issue. Even the nonprofits will be unable to sustain adequate reserves given the disparity iin underlying cost structures.

Of course... if Obama decides to fix reimbursements at closer to a commercial rates, there may be some viable competition... hmmm... any capitalists care to chime in about the notion of aggregate price fixing and its effect on a free market?

Jun 25 12:26 PM

[User 422955:]

The Post Office has long been at a competitive disadvantage because it was not allowed to compete with private businesses before UPS, et. al came along. Decades ago, the PO wanted to put copiers in Post Offices. No WAY! It was not allowed; copier shop lobbyists saw to that. Sell stationary and unstamped envelopes? No WAY!

A question for you gut-level anti-government types: Why do prisoners only (pretty much) make license plates? Ans: Because doing other work required by the public sector (e.g., printing, repairing office equipment, making office furniture) would compete with the private sector.

Before I retired, I was able to take my data entry work to a prison. However, no private business in town did data entry. Since I live in the state capital, there are plenty of prisons nearby.

Jun 25 08:46 PM

[Mr. Ed, Jr.:]

How competitive will the private health care insurance industry be with THE major player (gov) writing the rules for the entire industry ?

Obama and the dems have made it very clear (for those who have been listening) that they want single payer government- run healthcare. Period. This talk of "allowing" you to keep your present plan (Imagine that-- they will "allow" you..) is what they are saying to get the first stage passed into law. They believe in government. And they also believe that "the ends justify the means", as we have seen in almost everything they have done so far.

When they get their hands on the huge part of the GDP that is healthcare, they will be running banks, car companies, and if they can--every energy company (with Cap & Trade).

You cannot even imagine the new regulations that will be handed down by the "czars" of these programs. It will be as if your life has been invaded by a swarm of cockroaches.

And we have not even touched on the fact that there is no money for this "free" healthcare.

Before we go down this road with a reckless administration and congress, let's make them give up the banks and car companies that they kept saying they didn't want to run.

Jul 03 02:25 AM

[User 440976:]

The majority who claim they are happy with health insurance are not even paying for it. How could you be happy with something you have absolutely no control over? YOUR COMPANY controls your insurance, not you. They decide how much to pass along to you. If you lose your job, or want to open a business YOU ARE STUCK.

Why don't they poll those who are actually paying ?If you were paying $500 - $600 monthly, which is what you would pay if you didn't get if from your employer, or over $1000 which is the cost if you have a sick family member , you would NOT be happy. YOU WILL BE DENIED IF YOU HAVE A CONDITION . A SIMPLY ALLERGY IS A PRE-EXISTING CONDITION, and thus, your meds WILL NOT BE COVERED.

That is totally not fair. My reward for being an entrepreneur, putting money into the economy AND creating jobs, is ripp-off health insurance that doesn't even cover stuff I need, or NO health insurance.

My only hope of ever getting insurance is though a GROUP . The public option is the only way anyone can get reasonable health care outside of a corporation.

Those who claim they are happy, are wishful thinkers, thinking their corporation is going to cover them for the rest of their life. Dream on.

Jul 05 04:00 PM