Profit motive in health care is essential

Those in favor of government health care often argue that private insurance companies are inefficient, wasting huge sums in administrative overhead that provides no benefit to patients.

At the same time, the same people blast private insurance companies for being driven by the profit motive.

I wonder: who has the greater incentive to avoid wasting money on useless overhead? The government, or a private company that can keep the money saved as profits?

Further: private health insurance companies operate in competitive markets. Those companies that spend needlessly on overhead that doesn’t add value will go out of business. That’s the neat thing about competition and free markets, as realized in the form of profits and losses: these forces help companies learn the best way to organize and how much to spend on the various things that make their businesses run.

Companies that make unwise decisions will see their profits suffer or will incur losses. This is a signal that other companies are more efficient.

Government, on the other hand, is immune to the forces of competition. It can waste whatever it wants with little consequence. Once in a while people notice and vote someone out of office, but this doesn’t happen very often.

For those who point to Medicare’s low overhead costs, here’s a blog post that explains: Busting Medicare’s “Low Overhead Advantage” Myth.


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