A good test of how a person feels about President Obama's health-care overhaul is how the person feels about the post office. Skeptics include the former Reagan speechwriter who writes for the Wall Street Journal, Peggy Noonan. She wrote on July 24: "Americans don't fear the devil's in the details, they fear hell is. Do they want the same people running health care who gave us the Department of Motor Vehicles, the post office and the invasion of Iraq?" Similarly skeptical is John Stossel, the libertarian-leaning ABC news reporter and blogger, who wrote on July 6 that senators are justifiably skeptical that universal health coverage would work because "They've been to the post office and the motor vehicles department."
The Princeton Nobel laureate economist and New York Times columnist Paul Krugman, on the other hand, is a fan of the post office. He's even a former postal worker. He wrote August 4, "Maybe I'm living a sheltered life here in central New Jersey, but I don't find the Post Office a terrible experience — no worse than Fedex or UPS. (Full disclosure: I worked as a temp mailman when in college.)… The prejudice against government seems to have become free-floating, unattached to any actual experience."
President Obama himself stepped into the fray on August 11, speaking at a town hall event in Portsmouth, N.H. and arguing that the "public option" he wants to offer as a health insurance plan would not put private insurers out of business. "I mean, if you think about -- if you think about it, UPS and FedEx are doing just fine, right? No, they are. It's the Post Office that's always having problems." (Apparently the post office Mr. Obama goes to isn't the problem-free Paul Krugman branch office in central New Jersey.)
Mr. Obama's words, in turn, ignited a new wave of commentary. Llewellyn Rockwell quotes Vladimir Lenin as summing up his aim as "To organize the whole economy on the lines of the postal service…" Mr. Rockwell spells out how the U.S. post office is both subsidized and protected by the federal government, a point that is also made by John R. Graham over at John Goodman's health policy blog. Mr. Graham notes that the postal service "is going to need a taxpayer bailout of $7 billion this year. And despite the president's claim, it doesn't have competition in its core market of letter delivery. It's illegal for FedEx or UPS to undercut the government's price on letter mail. It's also illegal for any other entity to send mail to a Post Office Box." An economic policy aide to President Bush, Keith Hennessey, wrote, "I think the President was using this example to demonstrate that private firms can compete with the government. It came out wrong. He undermined the case for more government control, and especially for a public option, by pointing out that the government cannot deliver the mail and stay on budget."
The post office charges $17.50 to send an Express Mail flat rate envelope overnight within the U.S., while UPS Next Day Air is $20.66 and FedEx Standard Overnight service is $18.64 for residential delivery from a FedEx authorized ship center. Express Mail is more likely to be open for business on Saturday, and at the same prices, than the competing services are. If you are a big shipper such as Amazon.com or L.L. Bean you may be able to negotiate a cheaper rate with Fedex or UPS better than with the postal service. But if you are an individual, the taxpayer subsidy makes shipping with the postal service not a bad proposition.
The economies of scale are at work in similar ways in the market for health insurance. Big employers have bargaining power with health insurance companies in the same way that big shippers have bargaining power with UPS and FedEx. In addition, the big companies can spread risk among larger pools of healthy employees and even self-insure. But small employers or individuals don't have that bargaining power or, in most cases, the ability to self-insure. They might band together to form purchasing pools, but, as this article from the Chronicle of Philanthropy points out, that's difficult to do unless you are recognized by the IRS as a religious institution. Even then it isn't easy.
So a public option might work something like the post office, undercutting the private plans on price with the assistance of a government subsidy in a way that makes it attractive to individuals and small businesses, but not to big businesses. The difference between the post office and health care, though, is that overnight delivery services are pretty much easily substitutable goods. So long as the envelope gets there the next day, most senders and recipients don't care much whether it was delivered by a driver wearing the brown uniform of UPS or the blue uniform of the U.S. Postal Service. Some medical services are easily substitutable goods. If you take Lipitor pills, you don't care much whether the insurance company paying for them is called "public option" or "Aetna." It's the same pill either way. If you are having open-heart surgery, on the other hand, you may care a great deal about who the surgeon is, and you might choose between the "public option" or Aetna – and you might pay more for one or the other — depending on whether you can choose the surgeon with the better reputation and success rate. Surgeons are not necessarily easily substitutable goods.
The thing about a public option – and about the post office – is that even those shippers who use only UPS and FedEx wind up subsidizing the Post Office through their tax dollars. In the same way, people who have private insurance would probably wind up subsidizing the public health insurance option through their tax dollars. The question is whether that's a good policy. How people feel about it seems to comes down, more or less, to how they feel about the post office. Or, as Sage No. 1 put it in our interview: Capitalism is like religion, either you believe or you don't believe.
