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Argument: Government is better than businesses at many things

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"The Case FOR Bureaucracy." GovernmentIsGood.com.: "Myth No. 2: Business is Always Better than Bureaucracy. Another of the more persistent myths about bureaucracy is that “business is better” – that businesses are always more efficient than government efforts. Since government bureaucracies don’t have to produce a profit and they are not subject to market competition, it is argued, they have much less incentive to be cost-efficient in their management and delivery of services. The assumed superiority of business has become so commonsensical that it hardly ever questioned at all. This notion has also become an important argument for conservatives in their effort to reduce government and to privatize many of its functions. But are public agencies always less efficient than businesses? A careful look at this issue casts doubt on this common belief. There have been many empirical studies examining the efficiency of government bureaucracies versus business in a variety of areas, including refuse collection, electrical utilities, public transportation, water supply systems, and hospital administration. The findings have been mixed. Some studies of electric utilities have found that publicly owned ones were more efficient and charged lower prices than privately owned utilities. Several other studies found the opposite, and yet others found no significant differences.6 Studies of other services produced similar kinds of mixed results. Charles Goodsell is a professor of Public Administration and Public Affairs at Virginia Polytechnic Institute and State University who has spent much of his life studying bureaucracy. After examining these efficiency studies, he concluded: “In short, there is much evidence that is ambivalent. The assumption that business always does better than government is not upheld. … When you add up all these study results, the basis for the mantra that business is always better evaporates.”7

Further evidence that business is not always superior to government bureaucracy can be found in the area of health care. This is a critical issue today and it is well worth examining in some detail the question of whether market-based health care is superior to government run programs. Conservatives constantly warn us that adopting “socialized” medicine would put health care in the hands of government bureaucracies, which would be recipe for incredible waste and inferior care. But is this really the case? We can answer this question by comparing the performance of public versus private health care systems. Every other developed country has some form of universal health care with a substantial amount of public funding and administration. In contrast, while the U.S. has a few programs like Medicare and Medicaid, most of our health care system is privately funded and administered. According to conservative mythology, this market-based system should produce better health care and do so more efficiently. But neither of these claims hold up when we look at studies of the actual performance of public and private approaches to providing health care.

First, studies have found that the U.S. health care system is by far the most expensive in the world. We spend 13.6% of our gross domestic product on health care – the highest in the world. The average for the other 13 industrialized countries in the OECD is 8.2%.8 We also rank number one in terms of health care expenditures per capita, with U.S. spending $4,090 a year for every citizen. The highest figures for other industrialized nations are $2,547 per year for Switzerland, $2,339 for Germany, $2,340 for Luxembourg, and $2,095 for Canada.9 But while we clearly have the most expensive health care system in the world, it does not always deliver the best health care nor does it provide health care in the most efficient way.

Research has shown that the U.S. ranks poorly compared to many other countries in terms of some common measures of health. For example, we rank 26th among industrialized countries for infant mortality rates.10 We also do much less well in terms of life expectancy. In one typical study, the World Health Organizations (WHO) looked at “disability adjusted life expectancy”– the number of years that one can expect to lead a healthy life. The U.S. came in a disappointing 24th on this measure. As one WHO official concluded: “The position of the United States is one of the major surprises of the new rating system. … Basically, you die earlier and spend more time disabled if you’re an American rather than a member of most other advanced countries.”11 Moreover, an article in the Journal of the American Medical Association in 2000 noted with concern the results of a comprehensive study that compared how 13 industrialized nations were ranked on 16 different measures of health. The U.S. ranked an average of 12th – second to last.12

Why do Americans spend so much on health care but not get superior care? There are several reasons. One is that doctors tend to make more in the U.S. than in other countries, and another is that governments in other countries negotiate better deals with pharmaceutical companies on drug prices. But the other major reason is that our private, multi-payer system is much less efficient than the public single-payer systems in other countries. Consider this: the New England Journal of Medicine estimates that administrative costs take 31 cents out of every health care dollar in the U.S., compared to only 17 cents in Canada.13 Why is this the case? Private insurance companies spend much more on paperwork and administrative overhead. The sheer number of people that are working in these private insurance bureaucracies far outstrips those required in government-funded programs. In Massachusetts alone, Blue Cross/Blue Shield employs 6,682 workers to cover 2.7 million subscribers. This is more people than work in all of Canada’s provincial health care plans, which cover over 25 million people.14 Why do insurance companies need so many workers? One reason, as Paul Krugman explains, is that millions of health insurance personnel in the U.S. are employed not to help deliver health care at all, but to try to get someone else to pay the bills instead of their company.

Another source of administrative inefficiency in our private multi-payer health care system is the enormous amount of overlap between companies. Each insurance company must maintain its own records and develop its own billing processes. This is much more expensive than using a single government administrative structure. Moreover, our multi-payer system drives up the administrative costs for doctors and hospitals. They must deal with dozens of different insurance plans, each with their own coverage, payment rules, etc. We then need to add to all of this excessive overhead the need for private insurers to make a profit – something that government needn’t do. This makes our private system becomes more expensive. It has been estimated that higher overhead and the need for profit together add from 15% to 25% to the costs of private insurance plans, while the overhead for the government-run Medicare program is a mere 3%. Given all this, it should not come as a shock to find that a 2004 study by researchers sat Harvard Medical School and Public Citizen concluded that the U.S. could save up to $286 billion a year on paperwork if we switched to a single-payer, national health insurance program.15 This money saved from eliminating the private health care bureaucracy would be more than enough to offset the costs of extending coverage to the millions of Americans who now have no health insurance at all. To sum up, government-funded universal health care plans provide better care to more people at a lower cost. This one example by itself should be enough to explode the myth that business and privatization are always better than government bureaucracy in providing vital services to the public."

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