A Pyrrhic Victory for the Free Market
Cape Girardeau will soon have a new $10 million dental and vision cooperative. From an article in the Southeast Missourian:
“The clinic will provide affordable access to top-quality dental and vision care to its members without the limitations and costs associated with traditional insurance,” Dickerson said.
People who join the cooperative become part owners and pay dues to get basic services such as checkups, cleanings and comprehensive exams.
For many reasons, health cooperatives are a great free-market health care solution. There are many positive consequences to increasing the number of health cooperatives in the market, such as improving patient access, lowering costs, and reducing bureaucracy. Because individuals will be spending their own money (not the money of a third-party insurance provider), they will consume health care more deliberately, as they would with a health savings account (HSA). Increasing the number of health care cooperatives in the market would place downward pressure on the cost of routine medical care. Patients would be better off, not only because their health care would cost less, but also because specialty providers could focus their resources on the patients that need more critical care.
To my grave disappointment, however, the project is subsidized by state targeted tax credits. Again from the article:
Gov. Jay Nixon joined Watch Me Smile dental and vision cooperative developer W. Weaver Dickerson at the former First Federal Bank building to announce the project and $2.05 million in state economic development incentives. [...]
His company is receiving $1.3 million in Missouri Quality Jobs funding and a $750,000 community development block grant, Nixon said.
If past performance of the Quality Jobs program is predictive of its future, this particular project might not deliver on its projected fiscal impact. According to an April 2010 report on tax credit cost controls from the state auditor’s office, the actual redemptions of the Quality Jobs program exceeded the projected long-term fiscal impact. For fiscal years 2005 to 2009, the fiscal notes projected $124,000,000 in economic impact, but only $10,724,353 was measured — $113,275,647 below the projection. Failing to deliver on promises, in terms of job creation and economic activity, is a problem that’s pervasive in tax credit programs in Missouri and other states.
Because the consumer demand for routine primary health care services is high and constant, I suspect that this project would be successful independent of subsidy. The general welfare in Missouri would benefit from the proliferation of health care cooperatives, but subsidizing their development negates at least some of their benefit.
But I don’t understand. If they make so much sense, shouldn’t they be everywhere?
Comment by Rob — December 12, 2010 @ 11:48 a.m.
I don’t really think insurance companies (with an average 3% profit margin) are the problem. Removing profit will only make economic calculation more difficult, while ignoring the main problem with health care – namely the restricted supply of doctors, hospitals, medical schools etc. that is the result of nearly 150 years of lobbying from the medical industry for regulations that ultimately fatten their wallets while claiming its for public safety.
Comment by chris p — December 12, 2010 @ 12:59 p.m.
More-efficient solutions are often crowded out of markets when less-efficient solutions are heavily subsidized.
Comment by Eric D. Dixon — December 12, 2010 @ 2:01 p.m.
Sorry, I didn’t finish my post I guess. I was making exactly the same point as you, Eric. So maybe these programs do make sense (I’m not saying they do). But if the government is subsidizing the competition, is it not OK to subsidize the alternative as well in the short term? I say subsidize away until you can get rid of the original source of the inefficiency. Or is the enemy always subsidies and one is always better than two?
This is exactly the same as my argument on subsidies benefiting central cities. Until we can eliminate the subsidies tilting the advantage away from them, why not let government fix the problem it has created (within reason of course)?
Comment by Rob — December 13, 2010 @ 6:47 a.m.
Many, many problems in public policy are government-created, and the optimal solution is less government, not more.
Comment by Christine Harbin — December 13, 2010 @ 9:46 a.m.
So it would be better to not subsidize these programs and allow them to not exist? It’s not worth it to let them become proven while working toward the longer-term goal of eliminating the subsidies?
Comment by Rob — December 13, 2010 @ 6:39 p.m.
We can try to anticipate what the most efficient solution to a given problem will be, but we’ll probably get it wrong. The further removed we are from the decentralized feedback loops that markets provide, the more likely we’ll be wrong. Picking an alternative solution to subsidize almost inevitably entails picking another less-efficient solution to entrench.
And really, that entrenchment is one of the biggest problems. Once a particular solution is officially singled out for government promotion, it’s less likely to be sensitive to changing social conditions and incentives that would otherwise spur a program to grow, change, or be discarded over time.
Comment by Eric D. Dixon — December 14, 2010 @ 2:42 p.m.
The most efficient way is to pay dentists directly. Dickerson is a buffoon, and Nixon even more so for giving a convicted felon this much money. Besides no one but a dentist can operate a dental office in Missouri. Dickerson is trying to make as much Money as possible
Comment by Modentist — December 16, 2010 @ 6:57 p.m.
isn’t this America? didn’t Andrew Carnegie file for bankruptcy three times before finally becoming successful? I’m hearing a lot of jealous quacking. This country’s laws were based on the ability for individuals to try and if unsuccessful, dust themselves off and try again. So far as the priors go, he is operating with full disclosure, plus is under state supervision, which probably makes him a better risk to remain legitimate than most. I don’t see anyone else with the balls to try and create non-government jobs in this arena – stand back, be supportive, but diligent – he may just surprise you.
Comment by bo schneider — December 21, 2010 @ 2:50 p.m.