Expanding public options

Tyler Smith

Interest in state-owned services competing with the private market has been on the rise in recent years. Several US states are experimenting with public options on their health insurance exchanges in the hopes that it will deliver quality services at affordable prices, and the Biden administration is renewing efforts to make public health care options available on all Affordable Care Act exchanges. 

Advocates believe that public options help to discipline markets prone to failures, such as information asymmetries and market power, whereas critics often argue that public options are prone to inefficiencies, low quality, or political interests.

In a paper in the American Economic Review, authors Juan Pablo AtalJosé Ignacio CuestaFelipe González, and Cristóbal Otero provide empirical evidence on the effectiveness and equilibrium effects of public options, showing that public options can bring down spending overall, but may increase costs for some. Their findings are based on the decentralized entry of public retail pharmacies to local markets in Chile between 2015 and 2018.

In 2008, it became public knowledge that Chile’s three largest retail pharmacies were colluding to keep drug prices inflated above competitive rates. The scandal caused a wave of outrage, and one left-wing mayor responded by opening the first public pharmacy in October 2015. The move was widely seen as a success, and dozens of other mayors from across the political spectrum followed suit. By the end of 2018, 146 out of the 344 counties in the country were operating a public pharmacy.

Πηγή: www.aeaweb.org

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