TUESDAY OCTOBER 27, 2009

"Public" Competition

As the healthcare debate rages on in Washington, I continue to be intrigued by those who claim that the government must be part of the competition, aka the "public" option.  In an ideal economic world, the government should serve as the rule maker and referee.  Yet, in many of the "plans" under debate, the government is being installed as a competitor .  It is argued that the "public" option is necessary "to keep the insurance companies honest" and provide price competition.  Ironically, if there is a lack of competition in the health insurance market, it is because of government policies such as the prohibition of interstate policies.  And if the health insurance market can be kept "honest" through government competition, there must be other industries that could benefit as well.  How about grocery stores?  Why not all industry? 

One frequently cited example of government co-existing with private industry is higher education.  I find this interesting.  Certainly, in this geography, SUNY Oswego, Cortland and Onondaga Community College seem to thrive along with LeMoyne, Syracuse and Cornell.  There is no doubt that these public colleges provide an outstanding education at a cost significantly less than private schools.  However, it is not a question of whether pubic and private entities can coexist.  The important question whether this competition has resulted in price control?  Has the lower cost of the public option resulted in the reduction of overall college tuitions?  Is SU cheaper because of the presence of SUNY Cortland?  Far from it!  The inflation rate for college tuition has remained nearly twice the overall inflation rate of the economy for over thirty consecutive years!  If the large competitive presence of government was the answer to price control, wouldn't college tuition have been less than the overall inflation rate?  I would suggest that proponents of the public insurance option stop pointing to higher education as the example of success.

As a parent of a high school senior, I can painfully tell you it hasn't helped control tuition costs!

POSTED AT 1899-12-30 12:50:00.0

KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES

Ken is a Senior Vice President and the Director of the Trust and Investment Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.

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