Skip to content

If a public option would drive private health insurance out of business, how do UPS and Fedex survive against the USPS?

The next time a pundit claims that a public option will put private health insurance companies out of business and lead to socialized health care, I hope someone asks them how UPS, Fedex, and hundreds of other smaller delivery companies are still in business, despite having to compete with the US Post Office.

This is actually a good analogy, since the USPS provides universal service — delivering letters to anywhere in the US for the price of a stamp (even remote locations) — while private companies provide enhanced services to those people who are willing and able to pay more. This is how it should be with health insurance (and is how it works in countries like New Zealand). The government provides universal coverage for a basic price, while private health insurance companies compete with enhanced services (i.e., they could cover elective procedures that the public plan doesn’t).

Imagine the outcry if the Fedex and UPS insisted that the US Post Office be abolished, while retaining the right to refuse delivery to locations that they determined were too expensive to service. Sorry, that check you wanted to send to your daughter spending the summer in Alaska — no can do! Or imagine if there were hundreds of delivery companies and each one had different complex rules and addresses to which they deliver, and purposely tried to figure out how to not deliver your letters. Sorry, you used a USPS zip code, and ours have 23 digits — into the trash! Would that be that different from the situation that doctors and patients now find themselves in dealing with health insurance companies?

Of course, if delivery services were run like health insurance companies, you would have to pick one company to use (or your employer would pick it for you) and you couldn’t switch companies, even if they didn’t deliver to the address to which you wanted to send something. Naturally, their prices would increase 10% every year. And you couldn’t send “preexisting packages”.

The truth is that the health insurance industry doesn’t want to have to compete. How then could they continue to charge so much more for health care, pocketing the extra money while providing terrible service and results?

UPDATE: There are other analogies that work as well. Like how public schools (especially public universities) coexist with private ones. Arguments about whether the USPS is efficient or a good use of resources are completely irrelevant to the analogy. The point is that when someone says that a public option cannot be allowed because it would necessarily drive private insurance companies out of business, they are absolutely wrong (unless by “business”, they mean making obscene profits and providing mediocre service).

UPDATE 2: This post has spawned a huge discussion over at Reddit.

Share

28 Comments

  1. randy wrote:

    government insurance will be just like the usps. It will lose millions if not billions of dollars.

    Sunday, June 28, 2009 at 5:39 pm | Permalink
  2. Babycake wrote:

    The reason FedEx and UPS still exist is because USPS service sucks and more and more individuals/companies cannot afford to depend on the lousy bureaucratic offerings of the USPS. But they still have to pay for USPS, even if they don’t use it…right?? That’s fair…right??

    Sunday, June 28, 2009 at 6:34 pm | Permalink
  3. lindsey wrote:

    Brilliant analogy! I love it.

    Sunday, June 28, 2009 at 7:00 pm | Permalink
  4. Bob Barker wrote:

    You will notice that no private company can compete with the government subsidized letter/stamp. Only the larger packages in which the government tries to make a profit and thus is inferior to any competitive business.

    Sunday, June 28, 2009 at 7:51 pm | Permalink
  5. Jack Potter wrote:

    BabyCake, are you an idiot? Why would you have to pay for USPS service if you do not use it? They’re privately funded, your taxes don’t go to them.

    USPS service doesn’t suck in my area, must be your local P.O

    Sunday, June 28, 2009 at 8:27 pm | Permalink
  6. starluna wrote:

    I think it’s funny that you mention Alaska. My niece is currently living in North Pole, AK (and yes, Santa Claus lives there). Her husband is stationed at the military base in Fairbanks. When she first moved there she told me not to send anything by UPS or FedEx because they can never find their house. USPS, on the other hand, delivered to her door on Christmas day.

    In my view, USPS delivery beats the private services every time. My local delivery guy knows everyone in the neighborhood. The people in the local P.O. know us and they live in the neighborhood too. I will admit that the UPS guy knows most people too, at least in this part of the neighborhood. But we didn’t have the privilege of having a regular UPS guy until we bought this house.

    Sunday, June 28, 2009 at 9:08 pm | Permalink
  7. FedEx Ground Manager wrote:

    You do know that DHL ceased all Express operations in the United States this past fiscal year…right?

    Mostly in part to the recession, I just felt I should point that small detail out.

    Sunday, June 28, 2009 at 9:18 pm | Permalink
  8. jmac wrote:

    The reason the analogy is flawed is that the USPS has a constitutional monopoly on mail delivery.

    http://en.wikipedia.org/wiki/United_States_Postal_Service#Universal_Service_Obligation_and_monopoly_status

    The money from that and government subsidies allow it to pretend that it is a useful institution that should not just be abolished.

    Sunday, June 28, 2009 at 9:27 pm | Permalink
  9. Aren Cambre wrote:

    This is a horrible analogy.

    Try sending a first class letter by any means than USPS. (It’s illegal.)

    How many anticompetitive restrictions must UPS & FedEx live with just for the privilege of doing business?

    How many billions annually do taxpayers lose by subsidizing the USPS? Even though USPS is officially off-budget, someone is on the hook for the massive debt it’s running up! This year it’s over $5 billion. Since USPS has no viable revenue growth model, it has no way to pay off its debt, so today’s operations are subsidized with future tax dollars!

    How many decades/centuries did we suffer under USPS monopoly before other firms were allowed to carry some mail?

    How unionized and inefficient is the USPS workforce?

    Sunday, June 28, 2009 at 10:28 pm | Permalink
  10. Chris wrote:

    The analogy is flawed because the USPS has to run without a long term deficit, whereas health care hasn’t been proposed to have that same limitation of being revenue neutral for the general fund.

    Sunday, June 28, 2009 at 10:29 pm | Permalink
  11. Iron Knee wrote:

    To the people who are claiming that this is a bad analogy. It may be, but certainly not for the reasons you state.

    The point I am making is that having a publicly funded option does not necessarily put private companies out of business. I made an analogy with the USPS, but there are other examples, too. For example, there are *free* public schools, but private schools manage to stay in business (a better example would be public universities, which haven’t managed to put private universities out of business). And many places have public transportation coexisting with taxi cabs.

    You can rant all you want about how bad the USPS is, or how they are unionized, or cost the taxpayers money, or are regulated, or whatever. But that is completely besides the point.

    So when a pundit claims that a public option will necessarily put private health insurance out of business, they are not just wrong, they are either extremely stupid, or lying.

    Monday, June 29, 2009 at 12:05 am | Permalink
  12. Hassan wrote:

    Why private insurance companies running out of business is bad thing?

    Monday, June 29, 2009 at 5:57 am | Permalink
  13. Duncan wrote:

    Interesting comparison. However you don’t even need to compare with other industries.
    My question would be:
    “If a public option would drive private health insurance out of business, how come it works in the rest of the developped world?”

    America needs to stop navel gazing and take a look at the world around it.

    Monday, June 29, 2009 at 8:18 am | Permalink
  14. Daniel Habtemariam wrote:

    This analogy is EXACTLY what I’ve been thinking.

    …I’m a little scared and (a little amused) that you were thinking the exact same thing.

    The trolls here can bitch and complain all they want, but the USPS is FANTASTIC at providing BASIC services, and (at least where I live) it’s pretty freakin’ good at all the other services it provides. It’s the enhanced services that the private market would naturally be better for, and IF they really are better, then people will naturally choose them for those services. If you want to send first-class mail through FedEx, stick it in a FedEx envelope. And yes, they’re unionized, and yes, the industry is regulated–but guess what, FedEx is still a hugely profitable company, and every Americans still has access to low-cost local postal services whenever they want.

    The point is–
    (1) EVERYONE has BASIC access,
    (2) FedEx and UPS weren’t driven out business by the USPS (quite the opposite they were a post-hoc private sector outgrowth of USPS), and
    (3) UPS and FedEx can’t work in cahoots (like big oil does) to keep prices artificially high and mutually assure each other’s profit margins; if they do, then RATIONAL consumers in our free-market have a PUBLIC option to do business with rather than them.

    Monday, June 29, 2009 at 3:26 pm | Permalink
  15. Iron Knee wrote:

    I just want to point out to people who claim that the USPS doesn’t compete with Fedex or UPS that in many products such as overnight mail, they certainly do.

    And as Daniel points out, if you want to send a first class letter via Fedex, just put it in a Fedex envelope. Of course, it will be more than the 44 cents the USPS charges you. I just looked up how much Fedex charges to send a letter to the next town (6 miles from where I live). Their cheapest rate is $9.60 for 3 day service (slower than the USPS), PLUS $4.00 for home pickup (which the USPS does for free), PLUS $2.40 to deliver to a residential address, PLUS 16 cents “fuel surcharge”. Total? $16.16 for Fedex, or 36 times more expensive than USPS.

    For those who want to compare apples to apples, for overnight service, Fedex charges $20.55, while the USPS charges $17.50. Not only that, but I had to fill out a complicated form to figure out how much Fedex would charge, while USPS has a flat rate regardless of weight or distance for an overnight envelope. Of course, Fedex provides fancier services for an extra charge, including overnight priority and same day service.

    Conclusion: for overnight letters, USPS and Fedex compete directly (and they are competitive), and neither one has put the other out of business.

    Monday, June 29, 2009 at 4:56 pm | Permalink
  16. *applause* Iron Knee.

    Thanks for providing detailed (numbers!) to support your comparison.

    The reiteration of unsupported and vague cliches in public discourse undermines our ability to be an informed citizenry.

    Though I find it ironic that I am finding informed argument on website dedicated to humor, but humor as the last bastion of informed public debate is a well-established trend. ;-)

    Monday, June 29, 2009 at 5:08 pm | Permalink
  17. Iron Knee wrote:

    Thought Dancer, it is a long tradition, starting with court jesters (the only person who was allowed to disagree with the king). Another good example is Jonathan Swift. The best modern example, and my personal inspiration for this blog, is Jon Stewart.

    Monday, June 29, 2009 at 5:21 pm | Permalink
  18. Sammy wrote:

    I’m always impressed with the civil level of discourse and debate in the comments section of this site. You may not receive 150 comments per post, but the commentors seem to be level-headed in their debate and disagreement.

    Rarely are there harsh personal attacks or rote-from-memory talking points.

    Monday, June 29, 2009 at 5:42 pm | Permalink
  19. @ Iron Knee.

    Actually, I’ve never seen evidence that court jesters really were able to disagree with, or parody, most medieval kings. I believe that that tradition comes from the troubadours of medieval France, who may have created, among other fictions, much of our modern notions of romantic love. http://en.wikipedia.org/wiki/Troubadour Such jesters aren’t in Le Morte d’Artur or Piers the Plowman or such. Even as late a Chaucer, the “fool” was not one who could freely speak about the king. It’s only later, in Shakespeare and the courtier poetry of the 1500’s, that we see, in England, the image of the fool as the speaker of truth to power. (It may be earlier in other countries, but I am not recalling examples of such.)

    Sorry, but I’m a medievalist and classical rhetorician by training, and my dissertation was all about undermining one of other legends from the Medieval / early Renaissance–that women were forced to be silent. So I got a bit carried away. :-)

    What I was hoping I did with my prior comment was to indicate that in our current mode of civic discourse, humor websites are as significant, if not more so, that the tradition/mainstream modes of such discourse. Humor is, frankly, replacing the Op Ed page and the protesters on the street.

    (And yes, I love Jonathan Swift.)

    Monday, June 29, 2009 at 5:42 pm | Permalink
  20. Iron Knee wrote:

    TD, I bow to your superior knowledge of the subject of jesters (I was only repeating what I read in Wikipedia). I do appreciate the kind comments.

    When I started this blog, I decided to have absolutely no controls on who leaves comments, even allowing anonymous comments, as long as people didn’t trash the site. I figured that eventually I’d have to institute logins, or at least a captcha, or some other mechanism to keep out trolls. I have been pleasantly surprised that I’ve only had to delete about 6 comments total the whole time I’ve been running this blog. And thank goodness for Akismet, which keeps out the blog comment spam.

    I’m friends with the inventor of the wiki, and even he is amazed (and gratified) that people don’t trash wikis more often. Our theory is that if people know you trust them, they try to live up to that trust (at least, most of them do).

    Monday, June 29, 2009 at 5:57 pm | Permalink
  21. Josh wrote:

    “This is actually a good analogy, since the USPS provides universal service — delivering letters to anywhere in the US for the price of a stamp (even remote locations) — while private companies provide enhanced services to those people who are willing and able to pay more.”

    This is precisely the point. The public option will drive private insurers out of the routine insurance business and relegate them to serving high-end consumers who can afford the extra price tag for better service. This is no different from what happens in single payer systems like Canada’s–where everyone relies on the government for care except the rich.

    I have no idea why you think this defeats the argument against Obama’s plan.

    Thursday, July 2, 2009 at 11:42 am | Permalink
  22. Iron Knee wrote:

    Josh — because the argument being made against a public option is that it will drive private insurance companies out of business.

    Even if Obama was proposing single payer, it would NOT drive private insurance out of business. As for how much it would change their business, private insurance already doesn’t serve a large number of Americans (18 percent of the population under the age of 65). My mother, who is on Medicare (which is single-payer), also has a private health insurance policy.

    But Obama is only proposing a public option. People would be free to keep their own private insurance. Your analogy with the USPS is wrong, because by law, only the USPS can deliver first class mail. There will be no such restriction against private health insurance.

    So how can you say that a public *option* will drive private insurers out of even the routine insurance business?

    Thursday, July 2, 2009 at 7:04 pm | Permalink
  23. BillB wrote:

    IT’S THE COST SHIFTING STUPID!

    Mediacare and Medicaid caused this mess and this new universal care is only more of the same poison.

    40+ years ago Mediacard/Medicaid decided to control costs by only paying providers X cents on the doller. So if a provider charged $100 then Medicare/Medicaid only them a check for $50. Medicare/Medicaid could do this because they were so big, had so many members. What’s a provider to do say no to the old lady? So the provider takes the $50 but then has to make up the other $50 somehow. So guess what? They raise their service fee to $125 to compensate. So now everyone else is paying more. So then private insurance companies got wind of this scam and got into the game. They negotiated rates with provders that were also less than stated service fees. So now providers had to raise thier rates even more to compensate. So result is that the person trying to pay cash is really getting hit. In effect the largest group of consumers gets to shift their costs onto the smaller groups. So now the larger insurance companies can charge lower premiums – because they have ‘negotited’ lower service fees. Because the larger insurance comapnies preminums are lower everyone now gravitates to the largest companies giving those companies even more leverage over the providers and smaller insurance companies. This is a classic positive feedback situitiaon. Now what happens when the largest insurance company – by far – will be the universional plan? Because of the cost shifting no other insurance companies can survive- everyone will be ‘forced’ to go to the unversial plan because of its signifcantily lower fees – becuase it passed the cost onto everyone else.
    So once there is only universal care left then how will costs be controlled? Only one way left: Rationing. Don’t kid yourself it’s coming to America.

    The utter stupidity of compromising a situation that works for most (~80%) to make a miniority satisifed is just self imolation.

    The fix is simple: Ban cost shifting-Treat it as racketeering. Private sector AND Goverment are prohibited from such praticies.

    Monday, July 27, 2009 at 11:12 am | Permalink
  24. Iron Knee wrote:

    Billb, I have two responses to your argument. First, you seem to think that there is something wrong with controlling costs. If a “provider” doesn’t get as much money as they want, they “have to make up” the other money somehow. You never question the fact that health care costs have gone up much faster than the rate of inflation, and have actually doubled in the last few years.

    Second you say that rationing is coming to America. I don’t know how anyone could have interacted with the health care system in America in the last 10 years and not know that we already have rationing. I have had direct experience with the health care systems in three countries that have single-payer systems, plus America, and in every instance I had more trouble getting access to some treatment here in the USA than I did in England, Canada, or New Zealand.

    Which brings up the question — if what you say is true, why has it not happened in any other industrialized nation, all of which have universal health care and most of which have single payer?

    Although I agree with you that cost-shifting should be illegal.

    [sigh. no matter how many people tell me to not feed trolls, I never seem to learn.]

    Monday, July 27, 2009 at 11:38 am | Permalink
  25. BillB wrote:

    RE: My post and IRON KNEE response.

    1) my post wasn’t so much as directed at cost control. It was showing how positve feedback mechanisms will make it nearly impossible for private insurance companies to survive.
    Yes, costs have skyrocketed. It’s not sustainable – therefore it won’t happen, something will start to limit the cost growth. This is another issue for debate :-)

    2) Re: rationing: We have friends from Canada who all advise us “Don’t do it”, we Americans have it good by comparison. (>80% like it as it is).

    3) As far as it never happening in other industrialized nations: What makes you say it hasn’t? I would consider long waiting times a form a rationing – e.g. statisticly certain % will die before getting necessary cancer treatments or not getting them in time.

    The scary part about Obamacare is the it will kill private insurance. All that needs to be done to prevent this is a provision to ban cost shifting – but then MediCare/MediCaid need to stop doing it was well.

    Monday, July 27, 2009 at 6:15 pm | Permalink
  26. thisisnuts wrote:

    There should be a TV show.. “When Republicans Attack”.
    as in…
    “I was just sitting down to dinner minding my own business when out of the blue these republicans started spewing lies at me! I couldn’t defend myself! They clawed out my eyes… and since then my insurance company has dropped me!

    Funny… Repubs criticize the goverment for under-funding the cash for clunkers program, and for not bailing out Lehman Brothers… but wait… if we don’t want government intervention then why should it be the government’s responsibility to mobilize an economy befallen by greed???

    Tuesday, October 6, 2009 at 6:24 pm | Permalink
  27. G Buck wrote:

    It’s disturbing that you actually seem to believe the stuff you’re saying. Frankly, it’s preposterous.

    In almost every case, the government cannot compete with private industry without cheating or rigging the system in their favor.

    USPS is an embarrassing example of mismanagement and inefficiency. No private company would survive using their practices. None! Notwithstanding the legal mandate for delivery, USPS would be out of business in months if it had to compete in a private market. M-o-n-t-h-s. It’s core business (which is junk mail, btw) is in steep decline. High revenue 1st class letter traffic is falling off a cliff due to email and other factors. They only deliver a fraction of packages (UPS & Fedex alone account for more than 80%) so they could not sustain themselves in that business without the increasingly bulbous teat of government funding in the form of monopoly delivery. Don’t kid yourself; the post office is competition for nothing but time wasting.

    The university analogy is specious at best. Public universities are chartered by states. They are effectively 50 independent entities competing with each other (and the private universities.) And there is limited space at each university, creating a supply/demand balance that is impossible with public option mandated to carry all comers. So universities are hardly analogous to the monopoly that centrally run government health care would be.

    But despite this competition, the cost of public universities is rising at almost twice the rate of private universities. The effect is that public schools are becoming moderately less competitive relative to private schools. A similar unequal increase in the so called “public’ option would NOT be borne by the users of the public option, but by the taxpayers in general. There is, therefore, no accountability, no incentive to restrain price increases. There is no “leaving the public option” because there is zero possibility that the government would allow costs to rise enough that users would switch to private care. They would just subsidize from the taxpayers, unfairly shifting costs rather than competing.

    Further, there is no requirement for higher education. While every individual requires some level of healthcare, anyone can choose not attend college. Try not paying up under the Obamacare plan, and you WILL go to jail. That’s “Change” you better believe in.

    So, call us Republican trolls if you will. But ask yourself who is ignoring reality. Ask yourself who is naive. Ask yourself who is mindlessly droning someone else’s talking points. And take a long hard look in the mirror.

    Tuesday, October 20, 2009 at 2:06 pm | Permalink
  28. Iron Knee wrote:

    G Buck, I’m loathe to argue with your inaccurate diatribe, but I just want to point out a few really bad errors in your (almost fact-free) post.

    First, the public option being proposed would not be funded by taxpayer dollars. Only subsidizing health care for the poor, which is being proposed either with or without a public option. So your argument is silly.

    Second, nobody is proposing that anyone goes to jail for not paying up for health care. That argument is even sillier.

    I also want to point out that publicly funded health care, as practiced in just about every country other than the US, does compete very favorably with private health insurance companies, providing better care for less cost. This is simply a fact. Statements like the ones from BillB that claim that Canadians would prefer our system are simply lies. There is absolutely no data to back up that claim.

    I’ll make people like you a deal — you actually site real data and stop simply repeating lies and calling people names, and we’ll stop thinking that you’re a Republican troll (incidentally, I don’t think anyone actually called you a troll; are you just being sensitive?).

    Monday, November 16, 2009 at 2:15 pm | Permalink

2 Trackbacks/Pingbacks

  1. […] More:  Political Irony › If a public option would drive private health … […]

  2. solinkable.com on Monday, June 29, 2009 at 10:50 am

    If a public option would drive private health insurance out of business, how do UPS and Fedex survive…

    The next time a pundit claims that a public option will put private health insurance companies out of business and lead to socialized health care, I hope someone asks them how UPS, Fedex, and hundreds of other smaller delivery companies are still in bu…