In a recent public appearance Obama tried to assure concerned citizens that a government-option health insurer would not drive private insurers out of business. He said, “UPS and FedEx are doing just fine. It’s the post office that’s always having problems.” Indeed, today the U.S. Postal Service faces a $6 billion deficit and possibly will need to cut services as well as secure a taxpayer bailout.
Let’s run with Obama’s postal example.
To begin with, the U.S. Postal Service is a government monopoly. Private companies are not allowed to carry what is defined as first-class mail. Let a group of kids charge twenty-five cents to deliver their neighbors’ Christmas cards in their town and they’ll get a visit from postal police who will sternly inform the entrepreneurial young ones that they could go to jail for their crime.
The Post Office, as it originally was known, didn’t start out as a monopoly. The Constitution gave the federal government authority to “establish Post Offices and post Roads.” With the advent of railroads and steamships, private express companies emerged to carry mail, newspapers, and the like between cities. It was only in 1845 that Congress banned such private companies from competing with the government Post Office.
In 1845, Congress banned private companies from competing with the government Post Office.
In the first century of this country’s history you had to pick up your mail at a local post office. But with the growth of cities, private companies emerged that would pick up your mail for you at a post office and deliver it to you for a fee. It was only in 1872 that Congress banned private companies from offering that service.
The Post Office made many more efforts to get Congress or the courts to extend its monopoly; it even wanted to control email. Such are the incentives of government businesses that compete with the private sector. Will the incentives be any different for a government option health insurance provider?
They’ve Got the Power
In June 2003, campaigning for the Senate, Obama said “I happen to be a proponent of a single-payer universal health care program” and “A single-payer health care plan, a universal health care plan—and that's what I'd like to see.”
Obama now denies having this desire for a single player system. Such a system would eliminate private insurance and in any case outright bans and nationalization are not politically possible at this time. But here, too, his Postal Service analogy yields some insights about a gradualist approach that would lead to a single-payer system.
The U.S. Postal Service has special privileges and regulatory authority which it uses against its competitors. It pays no taxes on its post office real estate. It can fall back on the federal government for loans or handouts. In recent years, it tried to use its regulatory authority to put private mail receiving companies like Mail Boxes, Etc. at a disadvantage.
Islands of Freedom
Some aspects of U.S. Postal Service operations are subject to competition. An exemption to the Postal Service’s monopoly allows for private companies to carry mail and packages of a time-sensitive and urgent nature. It is from this little island of freedom that UPS and FedEx have built successful enterprises by meeting public demand.
But even here there are restrictions on those private companies. For example, they are required to charge a minimum price for their services; it would be a crime for them to offer next day delivery for $1.00 in your local, metropolitan area. And up until the past decade postal inspectors would often harass and attempt to fine businesses for “abusing” their freedom to use private carriers for time-sensitive items; most businesses now use UPS and FedEx for routine deliveries because those companies are very reliable and are accountable to the customers.
Of course, emails, electronic bill paying and the like are making many government postal services obsolete.
Inefficient As Ever
Obama brought up the Postal Service example to argue that just as UPS and FedEx compete with the Postal Service, private insurers could compete with a government health care insurer. No doubt he regrets adding that it’s the Postal Service that’s always having problems, since this analogy implying that the government insurer would also be riddled with problems.
Even though the Postal Service offers overnight delivery, 90 percent of such business is handled by private companies.
The Postal Service indeed has a fundamental problem being competitive because it is a government service. In spite of putting billions of dollars over the decades into new equipment and technology, it has not been able to lower its costs of labor as a percentage of its revenues because of its strong unions. And because it is a government entity, it is subject to restrictions to keep it from abusing its authority more than it already does, making it less efficient than private companies.
Finally, because it is not completely subject to market forces, the Postal Service has never been a cutting-edge innovator. Indeed, even though the Postal Service itself offers overnight delivery, 90 percent of such business is handled by private companies. The Postal Service now contract out to FedEx to carry much of its overnight deliveries on FedEx aircraft.
Free All Markets
The lesson here is that innovative services emerge only in competitive markets, which are free from government meddling. A government-run health care insurer would lapse into deficits and inefficiency. To prevent its demise it would require taxpayer bailouts, special favors, and severe restrictions and regulations on its competitors. Politics, not free markets, would govern this process.
Only an extremely credulous citizen could fail to see where President Obama is leading us and why his Postal Service analogy indeed provided an unintended insight into the truth of the situation: Picture long lines for medical services like long lines at your post office at Christmas time. Just as the Information Revolution came from the private sector, so a revolution in health care services will only come when government backs out of this sector and allows more private competition.