The discussion on policy implementation this week prompts a return to the issue of Healthcare reform in the United States. Osbourne and Gaebler (1992) at the end of their introduction to “Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector” call for “better government…. governance” (Osbourne, Gaebler, pg.24). In this book they present an alternative approach to managing the country affairs “ entrepreneurial government”. In chapter 11 of the same book they demonstrate the merits of this alternative approach to public policy by using HealthCare reform in the United States. Much of what was described in this example resembles ObamaCare, and while this approach to policy in the US health care system is only about 2 years old an examination of it through the lens of Enterprising Spirit outlined by Osbourne and Gaebler might be useful.
Osbourne and Gaebler maintain that in an entrepreneurial health care system government would set the rules for the administration of the system but leave actual provision in private hands. This system would encourage competition-allowing consumers to shop for the best possible prices and make information more easily available. Most importantly this system would create strong incentives for preventative care by encouraging prepaid arrangements between insurers and insured that benefit both. Osbourne and Gaebler maintain that an entrepreneurial health care system would preserve the decentralized nature of the US system while reducing the hierarchy associated with medical care. Creating a perfectly competitive market structure in which increasing quantities of consumers have better access to information, low prices and greater choice among medical practitioners. What they are in fact suggesting is an application of the neo-classical theory of perfect competition to the provision of health care.
Is this simply a theoretical example or can this type of system truly be achieved? The Patient Protection and Affordable Care Act (Obamacare) is certainly a step in this direction. The aim of Obamacare is to increase health care coverage for Americans while reducing costs. Furthermore the legislation provides a number of mechanisms such as mandates, subsidies and tax credits, which will provide incentive for employers and individuals to increase the coverage rate. In a very liberal market economy such as the US this type of healthcare reform does not seem very radical yet there has been public outcry and opposition to the implementation of this policy. As the pillar of the Capitalist world the entrepreneurial spirit is assumed to permeate through the very fabric of our society yet Obamacare is so strongly opposed. Why?
The health reform proposed by Osbourne and Gaebler is hinged on the very strong assumption that the market maintains supremacy in the provision of goods and services. It is this very assumption that will threaten the success of any type of healthcare reform based on competitive market structure. Two reasons could be offered to explain this opposition. Firstly the health care reform example by Osbourne and Gaebler and the Obamacare reform represents significant government intervention with regulations that alter the incentives of both health care providers and consumers. Since any type of government intervention is viewed within American society generally as infringing on the freedom of the market, a policy aimed at improving the health system by applying market mechanisms will be opposed simply because of what it represents. Secondly one might argue that this intervention into the healthcare system is unwarranted. The main argument for Obamacare and indeed raised by Osbourne and Gaebler is that the American Health care system fails to provide the efficient quantity because the price is simply too high. But is this necessarily a market failure or is it simply a consequence of the natural adjustments of the market forces. Price after all is not intended to drive incentives but rather to act as a signal, individual choices of consumers are assumed to be driven by preferences and income. So the fact that millions of Americans are/were uninsured could simply be explained by the fact that medical care was not a preferred commodity or that their incomes are simply too low.
One wonders then was the problem truly that medical care was priced too high and provision was limited? Or was it the case that incomes are and continue to be too low? Furthermore are these questions linked and the problem is threefold, limited access, high prices and low income? Finally what about consumer preferences? Increased access at lower prices does not guarantee that consumers will choose to purchase health care simply because they can now afford it. While the proposal by Osbourne and Gaebler (1992) and the implementation of the Patient Protection Affordable Care Act (2010) are certainly very good attempts at tackling the health care problems faced by the US, further consideration should be given to this problem particularly in attempting to change the preferences of consumers. As it is unclear thus far that making health care more affordable will lead to increased consumption.
by Deon Gibson
References
Howlett and Ramesh, Chapter 7: “Policy Implementation.”
Osbourne, David and Ted Gaebler, Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector, Introduction and Chapter 11, Addison-Welsey, 1992.
Comment from Zoe:
Osborne and Gaebler do not argue for a purely competitive health care system, but for one in which insurers must accept all patients, thus ending “the current practice of competing for the business of low-risk patients...” They argue that the government should play a larger role in steering health care policy, but a smaller role in financing and that the most fundamental problem with health care is that the United States government does not play a proactive role health policy. This has led to a lack of preventive medicine and other problems. What elements of the Affordable Care Act are truly competitive and what aspects of Osborne and Gaebler’s mode are truly competitive?
Well Zoe:
Adam Smith wrote that government's responsibility was to ensure the efficient functioning of the market as it provides for our needs. To achieve this government would establish a system of property rights, a legal system to enforce these rights and protection of the citizenry. Once these were in place government was to sit back and allow the market to produce the goods desired by society "steering not rowing". This formed the basis of what Paul Samuelson and later Leon Walras referred to as perfect competition in the Theory of the Firm. A market with a huge number of buyers and sellers all selling an identical product each having no influence over the price which is set extremely low to attract customers. I should point out that perfect competition is a theoretical ideal so that it is actually impossible to achieve but it is possible to observe market structures that are similar e.g monopolistic competition. The example that Osborne and Gaebler discuss is in essence a liberalization of the market for health care by increasing the number of people who have access as well as the number of health care providers as this occurs their ability to influence the rate/premium will be reduced. In a similar vein Obamacare is attempting the same result by increasing both the access to health coverage and the number of practioners the price will undoubetedly be driven down. Now I did not say that Osbourne and Gaebler are arguing for a purely competitive health care system but rather the reforms they propose are the result of applying the very basic tenants of perfect competition. In a similar vein the policy objectives of Obamacare can be seen as such as in both cases the result is increased liberalization of the health care market. The very notion of "steering health policy" is Smithian in nature. Finally I do agree that the US government is not at all proactive in the managing of the health system and in fact I hope to see public provision of this service someday not laissez faire style behavior by government....Deon
Osbourne and Gaebler maintain that in an entrepreneurial health care system government would set the rules for the administration of the system but leave actual provision in private hands. This system would encourage competition-allowing consumers to shop for the best possible prices and make information more easily available. Most importantly this system would create strong incentives for preventative care by encouraging prepaid arrangements between insurers and insured that benefit both. Osbourne and Gaebler maintain that an entrepreneurial health care system would preserve the decentralized nature of the US system while reducing the hierarchy associated with medical care. Creating a perfectly competitive market structure in which increasing quantities of consumers have better access to information, low prices and greater choice among medical practitioners. What they are in fact suggesting is an application of the neo-classical theory of perfect competition to the provision of health care.
Is this simply a theoretical example or can this type of system truly be achieved? The Patient Protection and Affordable Care Act (Obamacare) is certainly a step in this direction. The aim of Obamacare is to increase health care coverage for Americans while reducing costs. Furthermore the legislation provides a number of mechanisms such as mandates, subsidies and tax credits, which will provide incentive for employers and individuals to increase the coverage rate. In a very liberal market economy such as the US this type of healthcare reform does not seem very radical yet there has been public outcry and opposition to the implementation of this policy. As the pillar of the Capitalist world the entrepreneurial spirit is assumed to permeate through the very fabric of our society yet Obamacare is so strongly opposed. Why?
The health reform proposed by Osbourne and Gaebler is hinged on the very strong assumption that the market maintains supremacy in the provision of goods and services. It is this very assumption that will threaten the success of any type of healthcare reform based on competitive market structure. Two reasons could be offered to explain this opposition. Firstly the health care reform example by Osbourne and Gaebler and the Obamacare reform represents significant government intervention with regulations that alter the incentives of both health care providers and consumers. Since any type of government intervention is viewed within American society generally as infringing on the freedom of the market, a policy aimed at improving the health system by applying market mechanisms will be opposed simply because of what it represents. Secondly one might argue that this intervention into the healthcare system is unwarranted. The main argument for Obamacare and indeed raised by Osbourne and Gaebler is that the American Health care system fails to provide the efficient quantity because the price is simply too high. But is this necessarily a market failure or is it simply a consequence of the natural adjustments of the market forces. Price after all is not intended to drive incentives but rather to act as a signal, individual choices of consumers are assumed to be driven by preferences and income. So the fact that millions of Americans are/were uninsured could simply be explained by the fact that medical care was not a preferred commodity or that their incomes are simply too low.
One wonders then was the problem truly that medical care was priced too high and provision was limited? Or was it the case that incomes are and continue to be too low? Furthermore are these questions linked and the problem is threefold, limited access, high prices and low income? Finally what about consumer preferences? Increased access at lower prices does not guarantee that consumers will choose to purchase health care simply because they can now afford it. While the proposal by Osbourne and Gaebler (1992) and the implementation of the Patient Protection Affordable Care Act (2010) are certainly very good attempts at tackling the health care problems faced by the US, further consideration should be given to this problem particularly in attempting to change the preferences of consumers. As it is unclear thus far that making health care more affordable will lead to increased consumption.
by Deon Gibson
References
Howlett and Ramesh, Chapter 7: “Policy Implementation.”
Osbourne, David and Ted Gaebler, Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector, Introduction and Chapter 11, Addison-Welsey, 1992.
Comment from Zoe:
Osborne and Gaebler do not argue for a purely competitive health care system, but for one in which insurers must accept all patients, thus ending “the current practice of competing for the business of low-risk patients...” They argue that the government should play a larger role in steering health care policy, but a smaller role in financing and that the most fundamental problem with health care is that the United States government does not play a proactive role health policy. This has led to a lack of preventive medicine and other problems. What elements of the Affordable Care Act are truly competitive and what aspects of Osborne and Gaebler’s mode are truly competitive?
Well Zoe:
Adam Smith wrote that government's responsibility was to ensure the efficient functioning of the market as it provides for our needs. To achieve this government would establish a system of property rights, a legal system to enforce these rights and protection of the citizenry. Once these were in place government was to sit back and allow the market to produce the goods desired by society "steering not rowing". This formed the basis of what Paul Samuelson and later Leon Walras referred to as perfect competition in the Theory of the Firm. A market with a huge number of buyers and sellers all selling an identical product each having no influence over the price which is set extremely low to attract customers. I should point out that perfect competition is a theoretical ideal so that it is actually impossible to achieve but it is possible to observe market structures that are similar e.g monopolistic competition. The example that Osborne and Gaebler discuss is in essence a liberalization of the market for health care by increasing the number of people who have access as well as the number of health care providers as this occurs their ability to influence the rate/premium will be reduced. In a similar vein Obamacare is attempting the same result by increasing both the access to health coverage and the number of practioners the price will undoubetedly be driven down. Now I did not say that Osbourne and Gaebler are arguing for a purely competitive health care system but rather the reforms they propose are the result of applying the very basic tenants of perfect competition. In a similar vein the policy objectives of Obamacare can be seen as such as in both cases the result is increased liberalization of the health care market. The very notion of "steering health policy" is Smithian in nature. Finally I do agree that the US government is not at all proactive in the managing of the health system and in fact I hope to see public provision of this service someday not laissez faire style behavior by government....Deon
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