Healthcare anyone? The Breakfast Analogy.
In my last lecture on the Economics of Healthcare we got into a discussion on the latest plans that are floating around Washington. In order to simplify the concepts from an economic perspective, I created the breakfast analogy and here it is.
Suppose that a discovery was made in the U.S. that few Americans were eating breakfast and this was causing malnutrition As a result there was total consensus that every American should have a nutritious breakfast. The media spells out the options: (1) A National Breakfast Program supplied by the Government, (2) A Government Supplied National Breakfast Insurance Program where the Government mandates a morning breakfast for everyone (this might include a Breakfast Voucher for low incomes) and (3) A National Breakfast Bank [Yes this is ol’ Prof Timmy’s invention].
Under Option (1) everyone who has the money for breakfast pays a fee into the government. The government in turn decides that breakfast was too important of a meal to be left to the perils of the free market. As a result, the government decides that all Americans will receive a five dollar taxpayer-provided morning meal. The government decides what choices will land on the consumer’s plate.
The government would implement this program by purchasing food from existing producers or it could take over the means of production. In either case the means of distribution would be government breakfast depots where each person would collect or eat their morning ration each day. In such a program, government officials are not primarily interested in differentiating on the basis of people’s individual tastes and preferences. Instead, each person gets the same morning meal which contains those food items that a government health committee would decide is nutritious. Undoubtedly, such a government program would require many levels of employees to acquire the raw foods, prepare the meals, monitor the quality and quantity, as well as monitor the transportation issues for delivery of the meals. Obviously, this program would necessitate many levels of supervision, many employees and budget controls. In the final analysis, only a portion of the government money allocated to the program would go toward food. The majority gets gobbled up (no pun intended) in the bureaucracy.
Under Option 2, each person must pay breakfast money into a breakfast insurer who makes sure the person gets a nutritious meal. As a result each insurer substitutes their judgment in for the government’s on the terms of reimbursement. These companies decide what are acceptable food items are and whether they are worthy of reimbursement. The consumer buys their morning breakfast at their favorite private café then submits paperwork to their breakfast insurer who tenders reimbursement. What better way to make sure a person gets nutrition then telling them “no” when they want moolah for a donut.
In such a program, the breakfast insurance claims adjusters are not primarily interested in differentiating on the basis of people’s individual tastes and preferences. Instead, the company is concerned with profits and knows that it can keep more of the money if it can justify not paying some out. Obviously, this program would necessitate many levels of supervision, many employees and budget controls. In the final analysis, only a portion of the insurance premium money gets allocated toward food. Much of the money is again gobbled up (no pun intended here either) in the bureaucracy.
Option 3. The Breakfast Bank idea. Under this option the government gives every person five dollars on account to spend on their morning meal. In this program the consumer has choices. Each consumer seeks the best tasting, most nutritious meal at the best price. Tastes and preferences guide decision-making. The consumer’s preferences in turn guide producers who want a larger market share for their businesses. Producers will make decisions that cut costs and respond to consumer desires. This in turn, means that producers will reduce their breakfast prices and improve their nutrition. There is no need for government supervision (other than the local city health department) because, through consumers, the marketplace has invoked it’s own discipline.
The up side is that there is no money chewed up (sorry I really didn’t mean that pun either) in bureaucracy. Thus, more money is spent directly on the food. The downside is that there is no entity (government or insurer) peeking over the consumer’s shoulder to make sure they don’t purchase Apple fritters at their favorite greasy spoon.
The point here is that the free market can allocate resources to obtain an efficient outcome where bureaucrats can only project and estimate. Just as people want to decide where to go for breakfast, people want to decide which doctor to go to. People want choices on prescription drugs and medical devices. Some consumers want a fancy electric powered wheelchair, some just the standard roll along version. Some consumers prefer outpatient surgery with a local anesthesia, some want to be zonked out. When patients are allowed to vote with their money, they provide a message to healthcare suppliers.
If you would like to read my healthcare plan in its entirety, here it is.
Suppose that a discovery was made in the U.S. that few Americans were eating breakfast and this was causing malnutrition As a result there was total consensus that every American should have a nutritious breakfast. The media spells out the options: (1) A National Breakfast Program supplied by the Government, (2) A Government Supplied National Breakfast Insurance Program where the Government mandates a morning breakfast for everyone (this might include a Breakfast Voucher for low incomes) and (3) A National Breakfast Bank [Yes this is ol’ Prof Timmy’s invention].
Under Option (1) everyone who has the money for breakfast pays a fee into the government. The government in turn decides that breakfast was too important of a meal to be left to the perils of the free market. As a result, the government decides that all Americans will receive a five dollar taxpayer-provided morning meal. The government decides what choices will land on the consumer’s plate.
The government would implement this program by purchasing food from existing producers or it could take over the means of production. In either case the means of distribution would be government breakfast depots where each person would collect or eat their morning ration each day. In such a program, government officials are not primarily interested in differentiating on the basis of people’s individual tastes and preferences. Instead, each person gets the same morning meal which contains those food items that a government health committee would decide is nutritious. Undoubtedly, such a government program would require many levels of employees to acquire the raw foods, prepare the meals, monitor the quality and quantity, as well as monitor the transportation issues for delivery of the meals. Obviously, this program would necessitate many levels of supervision, many employees and budget controls. In the final analysis, only a portion of the government money allocated to the program would go toward food. The majority gets gobbled up (no pun intended) in the bureaucracy.
Under Option 2, each person must pay breakfast money into a breakfast insurer who makes sure the person gets a nutritious meal. As a result each insurer substitutes their judgment in for the government’s on the terms of reimbursement. These companies decide what are acceptable food items are and whether they are worthy of reimbursement. The consumer buys their morning breakfast at their favorite private café then submits paperwork to their breakfast insurer who tenders reimbursement. What better way to make sure a person gets nutrition then telling them “no” when they want moolah for a donut.
In such a program, the breakfast insurance claims adjusters are not primarily interested in differentiating on the basis of people’s individual tastes and preferences. Instead, the company is concerned with profits and knows that it can keep more of the money if it can justify not paying some out. Obviously, this program would necessitate many levels of supervision, many employees and budget controls. In the final analysis, only a portion of the insurance premium money gets allocated toward food. Much of the money is again gobbled up (no pun intended here either) in the bureaucracy.
Option 3. The Breakfast Bank idea. Under this option the government gives every person five dollars on account to spend on their morning meal. In this program the consumer has choices. Each consumer seeks the best tasting, most nutritious meal at the best price. Tastes and preferences guide decision-making. The consumer’s preferences in turn guide producers who want a larger market share for their businesses. Producers will make decisions that cut costs and respond to consumer desires. This in turn, means that producers will reduce their breakfast prices and improve their nutrition. There is no need for government supervision (other than the local city health department) because, through consumers, the marketplace has invoked it’s own discipline.
The up side is that there is no money chewed up (sorry I really didn’t mean that pun either) in bureaucracy. Thus, more money is spent directly on the food. The downside is that there is no entity (government or insurer) peeking over the consumer’s shoulder to make sure they don’t purchase Apple fritters at their favorite greasy spoon.
The point here is that the free market can allocate resources to obtain an efficient outcome where bureaucrats can only project and estimate. Just as people want to decide where to go for breakfast, people want to decide which doctor to go to. People want choices on prescription drugs and medical devices. Some consumers want a fancy electric powered wheelchair, some just the standard roll along version. Some consumers prefer outpatient surgery with a local anesthesia, some want to be zonked out. When patients are allowed to vote with their money, they provide a message to healthcare suppliers.
If you would like to read my healthcare plan in its entirety, here it is.
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