June 25, 2009

The REA and Obama's Health Care Plan

After the American Century

As debate rages in Washington about how to reform the health care system, it might be useful to look at another government program that stepped in to help people who were not being served by the private sector. The program I have in mind was created 75 years ago and has been a great success. Roosevelt called it the REA, or Rural Electrification Administration.

How is this like heath care? Back in c. 1935 roughly 90% of rural people lacked electricity. Private power companies said it cost too much to build lines out into sparsely settled areas, and farmers often did not use that much electricity even if they had it. As with health care, 25% or more of the population lacked an essential service.

Whenever a politician suggested that government step in to provide this service instead, however, he or she was immediately denounced as a socialist or a communist or an unrealistic dreamer. But the REA was created, providing power to rural people, which had important health implications. With electricity, dairy farms could become more hygienic, for example, and all farms could have refrigerators, washing machines, and hot running water. Farmers also had fewer accidents, because they did not have to manoeuvre in the dark with a lantern in one hand. But to keep the focus on the fiscal bottom line, the rural electrical cooperatives as a group proved to be a good investment. The loans need to start them up were paid back, and the rural coops have not become a permanent burden on the federal government, not least because farmers gradually used more electricity.

The analogy with health care admittedly is not perfect, but note that the Obama idea of creating a public health care option is not so different from the idea of creating a public electricity option. In each case the plan is that people will pay their own way, but without unnecessary costs. Indeed, one reason that President Franklin Roosevelt wanted the REA (and also the Tennessee Valley Authority) was to find out what electricity really ought to cost. The public programs became a yardstick, measuring real costs for service, disciplining the private companies.

One more important point. When the REA was created, the Republican Party denounced it as socialistic, and predicted the demise of private power companies. In fact, the private power companies continued to grow all through the Great Depression, and today they still control the vast majority of US power generation and transmission. The REA has also prospered, and there really is not much debate about this any more.

Similarly, if Obama convinces Congress to create a basic health plan that any American can choose to have, private health care will continue to flourish. There will always be people who want to buy more elaborate care in fancier waiting rooms with less waiting time. But the point is that, as with the REA, everyone will have access to an essential service.

Just as the REA made farmers healthier and more productive, universal health care in the United States will make the nation healthier and more productive. The Obama plan could also save a good deal of money. The US consumer pays far more per capita for health care than the Dane or or the Dutch or the Norwegian or the German consumer. Almost twice as much, actually.