Yet, the myth that government can't do anything right is now being trotted out to sink Obama's public health care option. If government is allowed to compete with private insurers, Medicare will pay less to providers than does private health insurance, warns none other than Karl Rove. This will undercut the private insurers and force them out of business and we'll all become European socialists.
But why should it? Shouldn't competition from government simply bring down the rates the private insurers pay and force the providers to cut their costs and generally operate more efficiently? As efficiently as, perhaps, the public sector operates?
On the one hand, Republicans pay homage to competition. Yet, they don't want government involved in the competition. Is it possible that one of the reasons for the high overhead among private insurers is the high salaries their CEOs make?
The irony is that the same argument that government can't do anything right and shouldn't compete is being used by the Patrick administration, which wants government out of the business of providing services to people with mental retardation. There has been a trend toward privatization of those services, Health and Human Services Secretary JudyAnn Bigby aruges, and therefore we'll all save money if we follow it.
But maybe there are some similar dynamics involved in the government supply of services to the mentally retarded and government's management of Medicare. Maybe there are some similar efficiencies. Salaries, for instance, for executives of nonprofit provider firms certainly outstrip their counterparts in the public sector.
The bottom line is that we need government involved in both the delivery of health care in this country and in the delivery of human services to our most vulnerable citizens. We can't concede those responsibilities entirely to the private sector.
fdr08 says
Why is the gov’t not allowed to use its clout to get better prices on drugs, because the drug companies lobbied to prevent it. That’s the private sector at work! Private sector is much more effective at lobbying.
dweir says
Good post. I’m with you as someone wary of the privatization of health and human services. The CEO of our local education collaborative has a salary of over $400K a year. It’s hard to do a cost comparison when the government no longer has a public offering and there are no truly private companies, only those who are fully funded by government contracts.
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p>That said, I do think we need to examine the “administrative cost” mantra and look to value rather than token expenses.
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p>
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p>Medicare contracts out to private insurance companies to process their claims. Is that factored into the 2-3% figure that you are quoting, or is the 2-3% administrative cost on top of the contracted cost?
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p>What are the figures a percentage of? Percentage of premiums, spending, total operations? In 2008, the Washington Post reported that Medicare fraud costs $60B annually. Is that factored into the administrative costs? Maybe the administrative costs should be higher in order to reduce fraud.
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p>I don’t believe that 97-98% of Medicare tax revenue is going to direct patient costs. Do you? I also don’t know that 25%-40% administrative costs is necessarily a bad thing. It depends on what those administrative costs were going towards. The more important measure is what value we get out of the health care dollars we spend.
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p>Take a look at education spending as an example of how quoting administrative costs can be misleading. “Administrative costs”, as a percentage of total budget, are between 2-5%. But add in other “administrative costs” — that is anything that is not a direct student service — and you can range from 20-50% depending on what comes under your definition of administrative expense. Is this bad? I don’t know. I can compare districts, and I might say one with lower administrative costs is better. But I should also look at results in terms of student performance, yes?
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p>Sources:
http://www.washingtonpost.com/…
http://finance1.doe.mass.edu/s…
tedf says
The private insurers fear that the government will use its market power to demand price concessions from providers and pharmaceutical companies that they (the insurers) aren’t able to obtain.
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p>That’s a reasonable fear, but in my opinion, tough luck. If it’s good enough for the VA and good enough for Medicare, it’s good enough for me.
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p>However, Congress set a terrible precedent when it forbade the government to negotiate the best possible drug prices in enacting Medicare Part D. So I wouldn’t be surprised to see the insurers win on this issue this time around, too. We can expect to see the “public option” forced to play with one hand tied behind its back, which negates much of the point of the public option in the first place, in my opinion.
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p>TedF
bostonshepherd says
it’s the fear of being forced to sell their products below cost. If the government is the only buyer for ethical drugs, then what happens if government wants a pharmaceutical company to sell a drug at $1 when their amortized cost is $2?
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p>It’s called monopsony.
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p>On top of that, the monopsony regulates the industry it’s trying to squeeze! Recipe for mischief, no? (If that begins to happen, why wouldn’t Pfizer move to the UK or Bermuda?)
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p>Hasn’t anyone in this thread taken economics?
woburndem says
This may be the case if Single Payer or a socialized medicine model was to be adopted where a single all encompassing health provider was dealing in a free market and the Drug company has no where else to sell their product. What is being discussed is nothing like that instead you have private insurers and a public failsafe all will purchase goods and services on the free market and compete for best price the trick will be who can keep their mark up the lowest. And who will have the broadest base.
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p>These facts are not consistent with a monopsony
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p>Yes I have taken Economics Thank you
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p>As Usual just my Opinion
tedf says
I know what monopsony is, bostonshepherd. If I recall right, one difference between monopoly and monopsony is that the monopolist can charge monopolistic prices forever, while a monopsonist will not be able to sustain prices that force producers to take a loss, because the producers will simply go out of business. Isn’t that right?
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p>The point is not that drug companies and providers should take a loss. The point, in my mind, is to capture the portion of the cost that goes into the private insurers’ pockets.
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p>TedF
bostonshepherd says
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p>This is what the pharmaceutical companies fear. What is to prevent, then, the government from seizing the patent for Lipitor, on the basis of “a drug too important not to produce,” because the prices they wish to pay, in a single-payer scenario, force Pfizer into bankruptcy?
mr-lynne says
… it’d force Pfizer into bankruptcy is if they not only forced the price but forced production, something price pressure can’t do.
tedf says
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p>Um, the Fifth Amendment.
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p>TedF
bostonshepherd says
Established bankruptcy law was ignored and trampled on by relegating secured lenders into 2nd-class investors.
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p>Just because the law supposedly provides protections from takings doesn’t mean the Obama administration won’t do it and put the burden of proof onto the dispossed.
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p>It happens daily with environmental laws and urban renewal emanate domain; indeed, the SCOTUS agreed 5-4 in Kelo v. New London.
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p>GM, Chrysler, bond holders, Mrs. Kelo … why not Pfizer?
tedf says
The Chrysler decision (which you can read here is much more complex than you make out. There were reasonable arguments on both sides. In support of Judge Gonzalez’s ruling, I’d point out that the priority secured creditors had first dibs on the proceeds of the sale of assets and that the administrative agent of the secured creditors consented to the sale on their behalf.
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p>In Kelo, the issue was whether the government could seize the property at all. No one disputed that if the government did seize the property, it had to pay just compensation to Mrs. Kelo.
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p>So I’m not really sure what you’re afraid of.
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p>TedF
lasthorseman says
United Health Care dumping customers
Baxter distributing “contaminated” vaccines
Monsanto forcing dieoff GMO seeds
Facebook normalizing the concept of data mining
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p>All the evils of corpo-fascism.
bostonshepherd says
OK to remove tin foil hat now.
lasthorseman says
http://people.csail.mit.edu/ra…
Ah, a truth denier!
ssurette says
Its about time executive compensation of these “non-profit” companies is a topic of discussion.
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p>I applaud the Patriot Ledger (your link) for printing this information. The taxpayer should be made aware of where their dollars are going. They highlighted only a handful of organizations and I know it is the tip of the iceberg. I do know that there are close to 300 companies on the DMR/DDS approved service provider list. Anyone can search public records and discover that some of the executives of these “non-profit” organizations are raking in $500K in salaries, benefits and expenses. Sounds profitable to me.
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p>I don’t have a problem with these individuals making a reasonable living. I thinks its a big problem when these service providers are 95%+ (and in a lot of cases more than 95%) funded by the government (both federal and state).
With all their whining about budget cuts, I wonder if these executive are going to take a pay cut to ensure the disabled individuals the taxpayer is paying them to care for will not suffer by way of a reduction in services. I doubt it.
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p>I think its safe to say that the salaries of the upper echelon of the state’s developmental centers or even at the “commission” level aren’t anywhere close to these non-profit executives for delivering the same services. Sounds fairly efficient. Yet Secretary Bigby insists we will save money by getting out of the business. HOW? The logic escapes me.
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p>I don’t particulary care what it costs to care for our mentally retarded and disabled citizens. I feel the same way about our disabled veterans. This is a moral obligation. But I draw the line when a supposed “non-profit” executive makes $500 large at taxpayer expense.
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bostonshepherd says
The argument against a public option in the health care insurance market is that government NEVER prices its services at their real cost.
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p>What’s the real cost of riding the MBTA? You think it’s the fare? It’s not. It’s a multiple of the fare: fares account only for $453 million on a budget of $1.6 trillion. The balance is made up in tax revenue from the state sales tax and municipal assessments (source.)
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p>So, instead of a $2.00 fare on the Green Line from Lechmere to BC, it’s really 3.6 times more … $7.20.
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p>$7.20 is the actual cost to get you from Lechmere to BC. Not some accounting BS. The actual cost. You only see the $2.00 at the fare box. The other $5.20 comes from sales taxes and municipal assessments. But the real cost is $7.20.
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p>If I started a trolley company in Boston and my cost per ride was $5.00, lower than the T’s real cost, I couldn’t compete with the T’s taxpayer subsidized $2.00 fares.
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p>Get it?
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p>Medicare works the same way. So do the federal flood insurance program. So does the Turnpike Authority.
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p>By the way, your argument about administrative costs is TOTALLY irrelevant. So what if Medicare’s administrative costs are lower? It loses trillion every year. Efficiently.
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p>The real problem is Medicare is priced BELOW what it actually costs to operate. Because of this it has built up an unfunded liability of $74 trillion, that’s TRILLION, with a T. Harvard Pilgrim, Blue Cross, Tufts, etc. … no unfunded liabilities.
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p>So, David from Hvad, government NEVER competes fairly with the private sector. The fear of a “public option” in this health care debate is that it will be priced at $2.00 while actually costing $7.20 thereby running out of business all the $5.00 private sector insurance companies.
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p>That’s not “competition.”
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p>Get it yet?
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p>
fdr08 says
Then tell us how you would go about solving the health care crisis?
dweir says
Can solve what isn’t defined.
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p>Some say it’s cost relative to GDP.
Some say it’s premiums.
Some say it’s coverage.
Some say it’s outcomes.
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p>Please define the crisis so we can continue the conversation.
fdr08 says
2. Cost relative to GDP and premiums (tie)There has got to me some efficient manner to computerize records and to be able to share data. Overhead costs for multiple providers.
3. Outcomes. Need tort reform.
bostonshepherd says
then you demand a comprehensive health care system redesign from me.
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p>First of all, why am I not experiencing “a crisis?” My PCP, my HMO, all seem to be running just fine for me and my wife.
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p>But assume a crisis. Option (1) Hand the whole damn system over to Wal Mart to run (and give them FEMA, too, while you’re at it.) Option (2) Implement a 401(k)-like health savings account nationwide, like the Safeway grocery chain has done … with great success. Let the gvt provide a subsidy if that’s preferable.
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p>In both cases, put the money in the hands of the patient to spend directly on their own care. That’ll drive prices down.
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p>Done.
woburndem says
Lets not lose sight of advertising by the MBTA as a revenue generator and a critical component to the revenue side. Also lets not loss sight that some of the charges that medical providers and Medicare are forced to cover are the cost of uninsured all over the country where as private insurance refuses to bend when negotiating rates for the services they will cover Medicare is the last stop.
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p>Ad in the mark up and over head costs, CEO compensation for one of private and not for profit and (snicker) non profit insurance providers and you have a substantial bleeding of dollars out of the system that do not go to services.
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p>Lets as Economists also not stick our head in the sand when we discuss the models by using primarily Massachusetts as the basis for the examples Health care in many other states and regions can not hold a candle to what we have in Massachusetts and that is primarily because of State laws and regulations, which many other states do not have. Also if you look at the model for our state is it based on a great % of High tech jobs in urban/suburban settings far different then rural settings that make up a greater proportion of other regions. These factors are critical when considering the alternatives on the table and the reasons for them.
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p>Now your modeling is only flawed not incorrect but when you bend facts to fit a model your thesis is suspect.
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p>As Usual just my opinion
mr-lynne says
price pressures are more born out of the fact that they have the neediest patient portfolio of any insurer (except perhaps the VA). Needier patients are by definition more expensive. The price pressures it puts on the private market of providers (it doesn’t seem to have any effect on private insurers) must be enormous, knowing that the patient pool is the business plan of any insurer. That they are able to pay what they do is actually amazing.
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p>Any large entity will be able to bring price pressure to bear on the market. Knowing that Medicare is probably the largest consumer of provider services (payouts for private insurers are kept low by design) it only bears to reason that they might have the ability to pressure the market. I don’t understand why it is that everyone seems to be ok when Walmart does this but not a government entity.
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p>The real problem with the competition is that if the public plan can cast it’s pool wider than medicare’s current pool (and that is the plan), the distributed risk across the larger (and less needy) pool will likely provide a system that actually outperforms medicare. The real threat is that this only works if the pool gets big enough. The danger is that, if it doesn’t, the public plan could initiate an insurance death spiral for itself. The best way for the pool to get big is to leverage it’s size on the market.
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p>Also another note: MBTA does get other non-rider, non-subsidy income – advertising in particular.
bostonshepherd says
Medicare is for all citizens 65 years old (and up.) That’s the program with a $74 TRILLION unfunded liability.
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p>Unlike the government, Wal Mart cannot forever charge sticker prices less than the cost of the goods like the government can. They do not have the power of taxation. They cannot print money.
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p>On the other hand, the federal government can set sticker prices at any level they please, set perhaps by political expediency and not at an economically rational level that is cost plus a profit.
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p>In order to make up the difference between the government prices we pay and the true cost of their services, government may simply redirect general Treasury tax receipts, or print money, to pay the difference.
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p>Wal Mart cannot set prices wherever they want. Certainly, they could never match government prices if the government so chose to make “affordable” the premiums they charge for goods and services.
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p>The source of Medicare’s $74 TRILLION unfunded liability? It sets its prices too low which sends utilization soaring. Then they borrow the money and leave IOU’s behind. It’s exactly what Bernie Madoff did. It’s a political program, not an economically rational health insurance system.
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p>And no, I’m not counting on reinvigorated advertising revenues to bail out the MBTA.
mr-lynne says
….
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p>”Unlike the government, Wal Mart cannot forever charge sticker prices less than the cost of the goods like the government can. They do not have the power of taxation. They cannot print money.”
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p>WalMart can’t, but insurance companies can. That’s the whole business model. Individuals don’t pay actual costs,… costs are spread across the portfolio as premiums. They don’t, of course, do this with taxes, they do it with premiums. And they do set premium prices, often using pricing as a way to eject people out of their risk pool. This is why their profitability is based on what they can deny and the health of their population portfolio.
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p>Medicare does the same thing, but with some added features and problems. They have access to a taxbase beyond their portfolio of current patients. This is somewhat justifiable because everyone eventually becomes part of their portfolio. They have the problem in that their pool isn’t very healthy (the elderly), and thus they represent some of the most expensive cases. Of course, we have the option of getting rid of medicare entirely, and on the private market these people would be uninsurable – they’d either be refused coverage, priced out of the market, or (if coverage were mandated at reasonable prices) force premiums for the rest of us to skyrocket. But of course we’d save the tax dollars.
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p>Of course the way to make a pool of unhealthy people easier to insure is to combine them with a pool of healthy people who all pay premiums. This is why single payer is the most efficient tool for insuring everyone.
christopher says
Public services are by definition subsidized by everyone’s taxes so that the direct fees are more financially accessible to more people. I’m not terribly concerned about competition. Private schools continue to exist at all levels, despite the existence of local public systems and state universities.
demolisher says
I mean, I know you guys believe in government and all but based on everything you’ve ever seen from government, could it really be that smashingly more efficient than the cut-throat private sector?
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p>Perhaps this is another case of using statistics to tell the story that works for your side.
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p>http://www.managedcaremag.com/…
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p>A nice deconstruction of this claim circa 2006.
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p>Another quick one:
http://www.patientpowernow.org…
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p>(inside link: http://www.washingtonpost.com/…
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p>
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p>There is a ton of logical, rational rebuttal out there to this assertion that “truth dig” has revealed. But you have to have a BS sensor in order to even look for it I guess.
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p>
woburndem says
And I have not seen a study on this specific point but how many Health care dollars are consumed by a duplication of services to deal with the large number and wide differences in Insurance products?
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p>People, space, and equipment at the point of service level Doctors office, health clinic, hospital etc.
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p>As Usual just my Opinion
bostonshepherd says
then why has it produced a $74 TRILLION unfunded liability (and that’s in 2006. Where is it now?)
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p>With all its duplicated “People, space, and equipment at the point of service level Doctors office, health clinic, hospital etc.” the private sector health care industry labors under, it still MAKES A PROFIT.
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p>While Medicare, since its inception in 1965, has racked up a $74 TRILLION unfunded liability.
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p>Which is more efficient?
demolisher says
then of course you advocate for monopolies?
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p>I think it is well established that monopolies are not only less efficient, but extremely counter to the good of the nation and its people. I can find more on this if you like.
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p>Until then, or until we get socialism right? :), then we’ll have to put up with every company doing their own books, payroll, renting their own office, buying their own printers, having their own IT, etc.*
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p>Except where they outsource these things to other companies who specialize in them (e.g. payroll).
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p>Yet somehow the independence of individual and small business enterprise is the engine of progress for the entire world, or so it seems to me.
woburndem says
Simply put your argument is such that the government can do nothing well thus the government should do nothing. How do you feel about the military? Should we out source to Black water and other companies to fight our battles why do it with government isn’t this a monopoly. It would seem to by your definition.
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p>It has become rather obvious that as the generation of baby boomers move into the AARP era of life that they here to will reek havoc on the components of that economy closely related to this time period and they are. Such that the budget can not sustain the system with mark ups and third parties and middle man we have reached a breaking point where the costs can no longer cover the cost of keeping the system with in capitalism. The dollars need to go from the buyer/patient to the provider? Medical industry directly, in order to achieve the lowest overhead and thus reduce the cost. Capitalism by its very nature is to charge a fee for every service you are unwilling or unable to do for your self.
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p>Will the government be a monopoly in simple terms yes it will is this socialism well is the military socialism or necessity because of cost and control. I think it is the same and thus in order to financially survive the Titanic generation which because it has gone from a net supplier of revenue and low use to low revenue and high use. Thus bankrupting the generations behind us, we need to streamline to the max. Will government bloat the process it is likely they will to some extent, yet won’t the rising costs and the shrinking revenues force government to keep it to a minimum. I would say absolutely or they are likely not going to survive the exercise
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p>As Usual just my Opinion.
moe says
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p>2. Privatizers like to skim the easier pupils, patients, toll roads, bus routes, professional schools, etc. Thus we must always ask questions about scale. The first charter school is apt to be roaring success. The last one will have no bidders unless highly subsidized. The late Andrew Kopkind coined the wonderful phrase, “Lemon Socialism” to describe how government will always end up owning and operating losing operations. An issue for even our small state is that some parts of the state are much poorer than others and some areas have much less population — so privatization may leave some areas without services.
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p>3. Privatizers attack social goods when they are obstacles to profit. John Silber as president of a private university spent hundreds of thousands of dollars lobbying to close the University of Massachusetts nursing schools even though there are never enough nurses, and it is good to have some from poor families. He constructed a whole ideology trying to abolish teachers’ colleges ad to substitute indirect testing credentials for actual teacher training. He successfully kept UMass out of the law school business (arguably not an offense against a social good) and also kept the UMass medical school in Worcester and not in Boston (possibly a confluence of public interest and BU gain there.)
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p>4. It is a considerable transition for a government agency from being a direct service provider to supervising contract providers. What we often see is the patty-cake internal inspection service diluted even more as its mission moves to supervising a network of private agencies.
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p>5. There may be tipping points beyond which the privatized agencies can dictate policy and price to elected officials. The public must then push back, as it is beginning to do on deregulated power companies.
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p>6. There are intrinsic inefficiencies in the middle stages of privatization — cash accounts to buffer government crises, duplication of backoffice services and executive salaries. Privatizers disguise this by cutting corners on staff wages and service.