Theory shows Public Option is better than EITHER no Public Option OR Single Payer-Pareto Optimality

HamdenRice

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Thu Sep-03-09 09:43 AM
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Theory shows Public Option is better than EITHER no Public Option OR Single Payer-Pareto Optimality

I agree with president Obama that if we were starting from scratch, the best health system to build would be a single payer, government run health system along the lines of the British National Health Service.

Unfortunately, we are not starting from scratch, and millions of people are currently insured through private insurance, and many of them get their insurance through their employers.

Many of these people like their insurance, and many don't like it. Some who don't like their private insurance, also are afraid of change and dislike the idea of going into a public system even more than they dislike their own private insurance. And then there are the Republicans, tea-baggers and town hall screamers who seem unable to calculate what is in their own best interests -- the kind who, it turns out, are uninsured, but are screaming against health insurance reform.

Then there are people who despise the private insurance system, perhaps because they were screwed over one or more times, who don't want to be in the private system, or people who simply prefer the simplicity and cost effectiveness of a public option.

There is a theory, from economics and game theory, that explains to some extent why given the system we have, and the public's preferences and perceptions, that the Public Option is politically the best way to improve the health financing system.

That theory is called "Pareto Optimality".

Before I go any further, I should note that I am opposed to the goal of Pareto Optimality in economics. I think its application tends to make policy makers reluctant to engage in redistribution of income, which is a bedrock concept in progressive economics. But Pareto Optimality is actually a very useful concept in politics, even if it's application to economics is questionable.

Pareto Optimality is a simple concept despite it's strange name (it is named after the person who proposed it, an Italian economist named Vilfredo Pareto). It simply asks, given any new policy, whether you can make one person better off without making any other person worse off. This is almost impossible to do in real world economics, but it's a useful "checklist" in politics.

Applied to health care reform, here's the Pareto problem:

There are people who have private insurance who want to keep it.

There are people who want to be in a public system.

A Pareto efficient solution would give people who want to stay in the private system, the ability to stay in the private system; but it would also give people who want to be in the public system the ability to opt into the public system.

Single payer, despite its efficiencies, would force people in the private system into a public system. This would generate a fierce backlash among people who, for whatever reason, would feel themselves worse off by being forced into the public system.

No public option would force people who want to opt into a public system into the private system. This would generate a backlash among progressives who have been hoping for real comprehensive reform that includes a robust public option.

The only Pareto efficient solution -- one that makes people who want a public option better off without making people who want to be in the private system worse off; and one that allows people who want to be in the private system better off without making people who want a public option worse off -- is reform of the private system plus a robust public option.

This is just a fancy way of saying, "be fair." The people against the public option seem to be arguing for "choice" but they are also saying "don't give a choice to people who want a public option." As the Obama administration and it's supporters have said over and over, if you don't want to be in the public system, don't go in the public system.

But for Chrissake, if we want to be in a public system, and if it doesn't cost you your private system, why not let us go into a public system.

Why are you trying to dictate to us that we can't have our public option, even though we are not trying to dictate to you, that you can't have your private system?

To sum up Pareto Optimality in a common phrase, it's no skin off your nose.