"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."
- President Barack Obama, rally in Portsmouth, NH, August 11, 2009
"[A government-run health plan] could provide a good deal for consumers, and would also keep pressure on private insurers to keep their policies affordable and treat their customers better, the same way public colleges and universities provide additional choice and competition to students without in any way inhibiting a vibrant system of private colleges and universities."
- President Barack Obama, speech to a joint session of Congress, September 9, 2009
Advocates of the so-called "public option" have used the example of the "competition" between the United States Postal Service (USPS) and private entities like FedEx and UPS, and between public and private universities, to allay fears that Americans' existing private health coverage would be threatened by a new government-run insurance plan. However, three key questions surrounding both of these analogies persist, and illustrate why private health plans could never compete on a level playing field with a government-run insurance program:
Do FedEx and UPS really "compete" with the Postal Service?
Even as President Obama and Democrats in Congress argue that the Postal Service "competes" against private carriers like UPS and FedEx, a Congressionally-granted monopoly provides USPS with nearly two-thirds of its total revenue. Since 1792, the government has enacted a series of laws, known as Private Express Statues (PES), which prohibit any entity other than the USPS from sending or carrying letters in exchange for a fee. In effect, these laws create a de facto monopoly and shield the USPS' letter delivery operations from any competition from private carriers. The lack of competition results in less choices for consumers and little incentive for the USPS to fight for customers by improving service. While Congress has seen fit to allow private industries to compete with the USPS for delivery of packages, outdated PES still restrict free competition when it comes to delivering letters. And it's not difficult to see why the USPS wants to maintain their government-run monopoly status. Through three quarters of recorded data from Fiscal Year 2009, 52 percent of the USPS' revenues came from the monopolized first-class mail and an additional 12 percent came from standard mail letters which other entities are also legally forbidden to deliver.
How many billions in taxpayer subsidies have these public "competitors" received?
According to the Government Accountability Office, a lack of long-term financial viability for the Postal Service has led to significant increases in USPS debt, with debt levels rising from $2.1 billion at the end of Fiscal Year 2006 to a projected $13.2 billion in Fiscal Year 2010-a more than sixfold increase in four short years. However, rather than allowing the Postal Service to "compete" on a level playing field by requiring USPS to restructure its operations without the use of taxpayer dollars, Congress has passed a series of short-term bailouts. In 2003, Congress passed the Postal Civil Service Retirement System Funding Reform Act (P.L. 108-18) which bailed-out USPS by allowing them to reduce their retiree payments at a cost of $7.1 billion. In 2006, Congress passed another USPS benefit reform bill (P.L. 109-435) which ended up costing another $1.5 billion. And just this month, the House recently passed a bailout that relieved the U.S. Postal Service of $4 billion in prefunded healthcare payments to offset their 2009 losses.
Likewise, State taxpayers subsidize public universities to the tune of tens of billions of dollars per year. According to a study conducted by the State Higher Education Executive Officers, in 2008 State governments provided a total of $81.1 billion in support for public universities. The same study noted that State spending on higher education has risen by an inflation-adjusted 7.3 percent in the past five years alone. Moreover, State and local governments financed more than two in three dollars (68 percent) of the $131 billion spent at public institutions during Fiscal Year 2008. In other words, just as nearly two in three dollars taken in by the Postal Service stem directly from its government-provided monopoly, two in three dollars funding public institutions come from government subsidies-not tuition payments from students.
In short, while President Obama claims that "the public [health] insurance option would have to be self-sufficient and rely on the premiums it collects" without resorting to taxpayer subsidies and bailouts, the analogies that he and other advocates of a government-run health plan have used to make their case strongly suggest otherwise.
How have government-run systems helped control costs?
Despite the President's claims-and billions of dollars in taxpayer subsidies-public universities have not helped to drive down the growth of costs in higher education. In fact, the College Board's most recent annual survey, Trends in College Pricing, concludes that "Prices of public four-year colleges and universities rose somewhat more rapidly between 1998-99 and 2008-09 than in the preceding decade, but private four-year [university]...prices rose more slowly than they had either from 1978-79 to 1988-89 or from 1988-89 to 1998-99." While tuition at private institutions rose 2.4 percent per year in real terms over the last decade, tuition levels at four-year public universities rose 4.2 percent per year after inflation over the same period. In other words, despite hundreds of billions in taxpayer subsidies, higher education costs are growing faster at public four-year universities than at similar privately-chartered institutions.
In the postal realm, the USPS has not helped control the costs of daily mail delivery-because, as noted above, FedEx and UPS are prohibited from using mailboxes to make first class deliveries. However, the price of a first-class postage stamp has increased by 33 percent over the past ten years-despite three separate government bailouts totaling more than $13 billion during that span.
While the President claims that a government-run health plan would compete on a level playing field, the examples cited by the so-called "public option's" advocates demonstrate that a government-run health plan could require a government-imposed monopoly-as well as additional billions in taxpayer funds to subsidize the "approved" government plan. For many of these same reasons, independent experts all agree that the legislation proposed would result in millions of Americans losing the coverage they have-the Congressional Budget Office believes several million, the Urban Institute up to 47 million, and the Lewin Group as many as 114 million. Given all these potential concerns, many may agree with CBO Director Elmendorf's recent statement that creating yet another entitlement in the form of a government-run plan to compete "on a level playing field" with private insurance would be "extremely difficult," and therefore oppose any efforts by Democrats to impose such a "solution" on the American people.