Co-ops

Profits in Health Care:

The AP has an odd Q&A piece on the "co-op" idea that ObamaCare advocates are floating, now that they've lost the fight to have the single-payer system they wanted, or the "public option" that was their second-best wish. The piece states that such co-ops have a "checkered" history, and that it is "unclear" if they would drive private insurers out of business. None of that is very helpful.

The oddest thing to me, though, is the question about how a co-op might be better. The answer is that the co-op advocates presume it could eliminate some costs, "including profits."

Profits are costs? That's a remarkably awful understanding of a basic economic concept.

Profits are revenue minus costs -- they're what is left over after you've paid for everything. Taking out the profits doesn't reduce the costs, which are the same either way. You can reduce profits by increasing costs, or by reducing revenue.

"But," one might object, "if you eliminate profits, you can make do with lower revenue. So, the price to the consumer is lower, because they don't have to provide profits for the co-op. It's enough that revenues meet costs, rather than surpassing the costs."

That revised concept still fails to grasp what profits are for. Profits are not costs, and the wise man doesn't seek to eliminate or reduce them.

Rather, profits are incentives. They encourage you to do something good for society, by providing you with something good in return. We want health care, right? Therefore, when someone offers to provide us with health care, we want to make it worth their while.

If we do that, more people will want to provide health care. They will be smarter people, too, the sort of people who could choose to do something else instead. That's good for everyone.

Profits are also responsive. Mark Steyn's point in his piece below was that, in a for-profit system, if your hospital isn't clean you can move to the one down the road. In the mandated, socialist system, that's not an option. Even if it were, though, why would the one down the road be any cleaner? There's no money in it. In America, being the cleanest hospital could quickly become a point of competition if attention were focused on it -- a competition leading to rapid improvements.

Lacking profits, the only way to motivate people is through negative consequences. If there's no positive incentive, you're left with regulations, punishments, and drafting unwilling people into service. You have a stick, but no carrot.

Profits are not costs. They're incentives. They're good. We should want more of them.