Health Care and the 'Predator State'

In June 2008, I used this space to call on then-Sen. Barack Obama to add economist James K. Galbraith's book, The Predator State, to his reading list. As an account of the capture of government by private interests, I thought it would make a far more useful guide to contemporary political economy than the market-glorifying texts that were still in fashion in those days.

I don't know if Mr. Obama ever took my advice.

But Iowa Republican Sen. Charles Grassley apparently did. During a debate last week over two Democratic proposals for a health-care bill featuring a "public option"--a government-run alternative to private health insurance--the senator announced he opposed the idea because, as he put it, "Government is not a fair competitor. . . . It's a predator."

The word "predator" seems to have become something of a Republican talking point. Mr. Grassley's colleague from South Dakota, John Thune, went on the record in July to warn that, when government goes into business, it "becomes not a competitor but a predator."

Have these two august men of the right secretly become fans of Mr. Galbraith, one of our leading liberal economists?

If so, they need to go back over The Predator State a second time. Although they have snapped up Mr. Galbraith's catchy title, they have misunderstood his message.

What makes government predatory, Mr. Grassley seems to believe, is its public-mindedness. Were government to offer health insurance to everybody without the industry's many devices for excluding risky individuals, some seem to fear, it might be able to offer consumers a price too fair for the profit-minded sector to match.

This is a curious reversal for a movement that ordinarily celebrates Darwinian struggle and the destruction of the weak by the strong. Just think of the conservative caricatures that must be inverted for this argument to work: All those soft liberal bureaucrats? Ferocious man-eaters. The welfare state? Law of the jungle.

And the actuarial-minded hardliners of the insurance biz, the ones who deny your claim or cancel your policy? A gentle but endangered species that needs our nurturing, sort of like panda bears.

Mr. Galbraith's point was the opposite: That government becomes a "predator" when it adopts the agenda of the private sector, when it comes under the control of business interests. According to Mr. Galbraith's book, these interests seek to "control the state partly in order to prevent the assertion of public purpose and partly to poach on the lines of activity that past public purpose has established."

A good example of this predatory "poaching" is the 2003 expansion of Medicare to include a prescription-drug benefit. "[T]he program was done in such a way as to make payments to drug companies as large as possible," Mr. Galbraith wrote, mainly by denying itself the power to negotiate discounts. Thus it "helped to ensure that a monopoly price on pharmaceuticals would be paid, while shifting the burden of paying it, in part, to the general taxpayer."

I emailed Mr. Galbraith to get his thoughts on Mr. Grassley's novel use of his idea. "[T]he concept of The Predator State is not quite as Senator Grassley describes," the economist replied. "Social Security isn't predatory. . . . Back before they were privatized, Fannie Mae and Freddie Mac weren't predatory. Ginnie Mae still isn't. And a public option for health insurance isn't predatory either."

"The 'predator state' describes what happens when chicken coops are given over to foxes," Mr. Galbraith continued. "When consumer protection, worker protection, environmental protection, and policing against fraud are handed over to lobbyists. And when health care is run for the benefit of private insurance companies, whose business model . . . is to target coverage on the healthy and delay payments to the sick."

That is predation. Public service is its opposite. And thus we come to the subtle part about Mr. Galbraith's theory, the catch that seems to have confused his potential admirers on the right: Government isn't simply "a predator" by definition, as Mr. Grassley would have it. Yes, it has been predatory in recent years, but for much of the last century it wasn't.

However, it is easy to see how a "public option" might be transformed into another opportunity for predation. With a little George W. Bush-era ingenuity, some future administration might decide to install insurance lobbyists at its helm. Future Congresses might require that its duties should be contracted out to existing insurance companies and then sign away their own power to supervise those companies' behavior.

I am happy to report, though, that a solution to such a problem is incredibly simple, and it is largely within the power of Mr. Grassley and his colleagues to deliver it: Don't let insurance industry lobbyists give you advice. Don't take their money. Just say no.

Read other articles from Opinion Journal: Obama and the General
Peter Suderman: The Lesson of State Health-Care Reforms

 

Comments

[miles120]

Honestly, I believe the Republicans are being very astute about this tactic, unless it was a complete random stumble onto Dr. Galbraith's book (which I doubt.) By co-opting his phrase, they take ownership of it. They know that the electorate won't bother to understand the argument that Galbraith makes. Instead, the Republicans will simply prevent message strategists on the left from using the predation concept.

This isn't about an honest debate of ideas. It is about mass marketing principles.

[rad21]

The Republican politicians and others steeped into healthcare debate should know the facts. The Rand study found only 40% of healthcare that was delivered was necessary and appropriate. The rest of medical care was over-treatment, under-treatment and inappropriate treatment. So there we have the "waste, fraud and abuse" by PROVIDERS (hospitals and doctors). Then there is "waste, fraud and abuse" by INSURANCE companies. Their 15-30% overhead cost has little to do with delivering medical care. There is LITTLE "waste, fraud and abuse" by the government; whose Medicare overhead cost is only 4%.

What irks me is the double-speak of our elected representatives. The politicians complain about the "waste, fraud and abuse"; then go on to also complain about the Medicare fiscal-cuts to prevent / reduce the "waste fraud and abuse". Now how can the same persons talk both-ways on public TV and get away with it? Are these political guys and gals "Stuck on Stupid"? Or are we the electorate just enamored watching the Democrat-Republican puppet-show; whose strings (attached to both sets of puppets) are pulled by the healthcare industry and lobbyists, greased with campaign contributions?

[bioluminescence]

Hypothetically speaking, if four people got together and set prices for a service in which they are major players, say health care, it's an offense under the Sherman Anti Trust Act. It's called horizontal price fixing.

Now if a fifth player comes along pledging transparent pricing policies do you think the four people and those that support them might be a little anxious?

Incidentally, the only major scalps in U. S. price fixing of late have been foreign ones. Samsung and LG are both Asian companies.

[mcsurge]

Tom,

please explain why so many people who would greatly benefit from a government health care option are so against it. It is like "what's the matter with kansas" all over again. Thanks

[Lulubelle1]

Grassley does not understand that wresting control of public health from the insurance industry is not UNLEASHING of a new predator state, but the CAGING of the existing one.

At least, I'd like to believe he doesn't understand. The alternative -- that he is cynically selling out the public -- is almost unthinkable.

Almost.

[jan4insight]

Great article, Mr. Frank!

The health-care debate, and most of the other serious issues we're dealing with these days, can be seen more and more as a war of the Corporations against the people. Michael Moore's new movie couldn't have come at a better time.

[jinxed]

GOPers will say anything, do anything, lie about everything to try to change what is into something that exists only in their own minds.

[BlueSkyPilot]

That's funny. The only thing they won't say NO to is money.

[justobserve]

They are wise , aren't they?