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Policy Hub: Macroblog provides concise commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues for a broad audience.

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February 12, 2007

Another Thought On The Edwards Health Care Plan

I find myself agreeing with Dean Baker's opinion that this is the most interesting part of presidential candidate John Edwards' health care plan:

The U.S. government will help states and groups of states create regional Health Markets, non-profit purchasing pools that offer a choice of competing insurance plans. At least one plan would be a public program based upon Medicare. All plans will include comprehensive benefits, including full mental health benefits. Families and businesses could choose to supplement their coverage with additional benefits. The markets will be available to everyone who does not get comparable insurance from their jobs or a public program and to employers that choose to join rather than offer their own insurance plans.

The one thing that worries me is the possibility that the endgame is domination by the public Medicare-like program, not because it is the best or most efficient means of providing insurance, but because state-run enterprises can stifle the competition by exploiting their access to taxpayer capital.

Fortunately, there is something of a model for markets in which government and private firms compete. That model comes in the form of the Monetary Control Act of 1980, which governs the behavior of the Federal Reserve when it participates in businesses for which there are actual or potential private-sector alternatives. (An example of such a business would be the collection and clearing of checks.)  In essence, the rules of the Act require that the Federal Reserve cover its economic costs, which include the return to capital that would be required by the owners of for-profit businesses.

Why is is it necessary to have the government producing services that private firms are able and willing to provide?  Whether you are talking about medical insurance or check-processing, it's a good question.  But arguably the provisions of the Monetary Control Act resulted in an efficiency-focused government supplier with some devotion to serving markets (community banks in particular) that might have been less desirable to private providers of those services.  And that doesn't sound like a bad outcome for a health care system.