In the comments to this post, commenter Tano made the following claim regarding national health care.
But they is plenty of room for compromise here. To take just one issue: I think it would be great if we had a national health insurance. That would relieve WalMart, and other companies, of their responsibilites toward their worker’s health, and thus make them more competitive. But so long as we dont have that, so long as we look to businesses to be providers of health insurance, then WalMart should do their part.
This is a notion I’ve seen tossed out casually in favor of nationalizing health care in some form. The problem is I think it is a bogus argument.
Employers pay both wages (salary) and benefits which the employer sees as total compensation. It is this latter number that firms look at when making decisions about the amount of labor to hire. Now, the idea that Tano seems to be espousing is that firms would become more competitive because they would lower their costs. That is, with benefits going to zero, compensation would go down and hence profits would go up. This would in turn lead to a decline in prices as competitors entered the market in response to these higher profits.
However, there is a problem here. Why should wages be assumed fixed? If the labor market is also competitive, which most are, then wages would rise. As such, the idea that firms would get a cost savings is only likely true in the short-run, if at all.
Second, there is the issue of how to pay for this nationalize health care. Suppose there is a tax levied on employers. Then all that we have done is simply exchange one cost for another, and a tax also comes with the added burden of a deadweight loss. Even if we recognize that the workers wages will rise, and instead tax them to pay for the national health care plan it will still likely reduce the workers income by more than enough to make workers worse off and possibly lower their conesumption of all goods. Consider a simple example. We have a worker who earns $900/year in wages and $100/year in benefits (lets also assume current taxes are 10%). Now, in this case the worker consumes $910 worth of goods and services. If we put in place national health care (and outlaw private health insurance, which we will probably have to due to avoid the problem of seperating equilibria due to adverse selection) and the competitive market in labor pushes up the wage to $1000, and we have to raise taxes just 1% point, now the worker enjoys only $890 of income for consumption. Basic consumer theory tells us that this consumer will be made strictly worse off. Further, it is possible that if this effect is large enough that firms also experience a decline.
So, this idea that by switching to a nationalized health care, firms will become more competitive strikes me as dubious at best. Another argument that is made in conjunction with the above is that a nationalized health care system will lower administrative costs. I find this somewhat of a dubious claim since governments and private businesses often have different standards for keeping track of various costs. That is, merely looking at what the government calls administrative costs, and what private industry calls administrative costs may not be the same thing.
