Tuesday, August 11, 2009

Fedex vs Healthcare

Today President Obama produced this quote "UPS and FedEx are doing just fine. It's the Post Office that's always having problems." He intended to illustrate how private health insurance would continue to do just fine under his new health care legislation. What he really demonstrated was both a complete lack of understanding of capitalism and how government control will destroy private industry. The first question that should be asked is "Why are UPS and Fedex turning a profit?" That is a simple one to answer. They provide a service that fills a need for their customers and for that service they receive payment in kind. The price for that service is determined by the cost to the business to perform that service. In the process they compete against each other and are forced by competition to adjust their prices and services to get the most profit from each transaction while attempting to undercut the price of the other guy.

That is the most basic rule of capitalism and can be applied to any form of business from moving a package to selling apples. The Post Office however does not, is not, allowed to function under this rule. The Post Office must charge a rate established by the government for each service it provides regardless of the cost to the Post Office for that service. The services it is allowed to provide are not set by market demand but by fiat from on high. The price to deliver a letter to the most out of the way location is the same as to the house next door. Restrictions set by the government prevent them from using as simple a marketing techniques as location, location, location.

Have you ever wondered why there is never a big blue mail box next to the grocery store, or at the big gas station? It is because the government does not want to appear to give the one store an edge over the other. So the boxes are placed where they will give no one an advantage. The result of this is the Post Office's hands are tied in the world of competition. However from the consumer side the Post Office is the best deal going. As I said for less than 50 cents a person will show up at your house, pick up a letter and another person will hand deliver that letter to the most out of the way location you can think of a day or two later. Fedex will charge you about twenty four dollars for the same service. It is no wonder the Post Office lost seven billion dollars last year. Fedex or UPS would quickly go out of business trying compete with the Post Office if they were forced to charge the same low rate of 50 cents or so for a letter. Of course the government supported the operating costs of the Post Office, with your tax dollars I might add. This support allows them to continue to operate against their competition despite the losses.

And that is where the health plan that Obama wants would spell the death of private health insurance. He does not understand if the government supplies insurance in competition with private industry. He has only two choices for a business plan. He must either require the new Gov. Health Inc. to provide insurance at a cost ratio to the public similar to the Post Office vs. Fedex i.e. 50 cents against $24. He must then support the losses to Gov. Health Inc. with tax dollars (our money) to allow them to continue to operate against their competition. His only other choice is to force the private insurance companies to provide the same services at the same price as Gov. Health Inc. Since the second option disregards things like operating expenses or profit it would quickly kill the private businesses.

Since our President has never run a business or even worked for one for very long I can believe he fails to understand the effect his plan will have. But at the same time I cannot believe no one advising him can have such a complete lack of understanding. This leaves only one last option, they are planning this with full knowledge of the effect it will have on everyone in the country. No wonder the Town Hall meetings are so filled with anger, everyone may not have thought it out the same way, or come to the same conclusion. But everyone knows they are on the loosing end of the deal and they don't like it.

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