On Healthcare: What We Can Learn From The Music Industry

Nathan Alderman has an interesting write up on the effect of a public option on the healthcare industry:

A decade ago, the major record labels were fat and happy, making piles of cash off CD sales. They could use their massive marketing muscle to push manufactured bands onto the airwaves and into listeners’ ears. If you had to buy a whole subpar album just to get the few songs you really wanted, well, too bad.

Then Internet file-sharing rolled into town. I’m not arguing that piracy’s right, but digitally available tunes did become a real competitor to the established music business. Rather than adapt to consumers’ changing tastes by going digital themselves — which would have meant surrendering their fat margins, and some of their control over what people listened to — the record labels panicked. They started suing file-sharers, driving their own customers away. In short, the record labels weren’t meeting customers’ demand; they were trying to dictate what they thought customers should demand, and actively ignoring what the free market really wanted. Does that sound like capitalism to you?

Industry outsider Apple (Nasdaq: AAPL) finally had to almost bully labels into offering digital tunes at a fair (or at least fairer) price. Now Amazon.com (Nasdaq: AMZN) and a host of others compete with Apple’s iTunes, a rivalry that has lowered prices, eliminated restrictive copy protection, and generally given consumers better music options. In return, audiophiles bought more music in 2008 than ever before, according to a January USA TODAY article. Most of those sales came in the form of digital downloads and individual tracks.

In my opinion, private health insurers are no less slothful and stubborn than record labels were at the dawn of the digital era. Insurers’ defenders say that a rival public option would “destroy their industry.” WellPoint (NYSE: WLP) has set up a website to oppose it. But in my opinion, it’s more likely that the increased competition would merely reduce their profits, loosen their control, and force them to work harder, smarter, and more efficiently. That may be bad news for health insurers’ stockholders, but you can’t deny that it’s good news for folks who need health insurance.

I tend to agree with this view.  A public option would, like Apple’s iTunes, hopefully drive prices down over time and force the private insurance industry to adapt, streamline,  cust costs, and come up with a better product.  This is good for consumers.  The whole debate has been pretty baffling to me given that it’s an option. 

Alderman doesn’t address two other facets of a public health insurance option that would be good for Capitalism:

1. 
   
   It would allow people to take risks.  No, not like jumping out of airplanes or something, but employment risks.  People would feel more comfortable seeking jobs at startups and small businesses (or starting their own!), which traditionally have a hard time offering competitive healthcare benefits.  Risk is good since it is what spawns invention and innovation; it would give smart people more flexibility in moving around and brining their ideas with them.
   
   
2. 
   
   It gives employees greater freedom (and employers a greater talent pool).  This is kind of related to the first point in that I think this is important to help spread ideas and innovation.  Employees who are dependent on their employer provided healthcare (like people with young kids, a sick spouse, or with a pre-existing condition) are kind of locked into their employers if they are dependent on employer provided healthcare.  Greater freedom to change jobs without worrying about losing health benefits would seem to lead to better wages, greater spread of innovation, and better options for everyone (employee and employers).  How can this be anything but a good thing?

Alderman’s basic premise is spot on, in my opinion, that a public option — if not a full out single payer system — would help Capitalism and not hurt it.