Of healthcare and profits

A question from Yahoo! Answers:

“Let’s take profits OUT of healthcare”, an oft-heard argument?

I’d like to hear your general thoughts on this sentiment as well as any commentary you might have on the following idea. What if the government forced all health insurance companies to use *private equity* instead of the current system where they’re valued by Wall Street’s wild rides. Would this help to remove or reduce “the profit factor” from our national healthcare nightmare???

Forcing for-profit health insurance to seek financing privately would accomplish no useful goals. Private equity investors generally demand higher returns than investors in publicly traded stocks (in finance, this is referred to as “liquidity premium”). So the pressure on a privately held insurance company to maintain profitability would be even higher than on its publicly traded counterpart.

There’s more to the healthcare problem than just profits… The current system has two big problems, (1) misaligned incentives (insurance companies have a financial incentive to refuse treatment), and (2) high administrative costs (there are many relatively small bureaucracies, each with its own set of rules, so there is little economy of scale and a lot of portability problems). In countries where healthcare is financed publicly, neither problem exists; public servants have an incentive to approve treatments (or, rather, rubber-stamp doctors’ prescriptions; the more treatments they approve, the less the chance they will be laid off as excess workers), while administrative costs are kept low by virtue of there being a single large bureaucracy with one set of rules, so there is economy of scale and no portability problems.

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