I'm paying more attention to what we find in our mailbox. And also what we mail out. I'm thinking about it a lot, too. I have good friend, Denny, to thank for that.
What's coming in? Junk-mail advertising, lots of it--and magazines, too, lots of them. We also get a lot of packages, mostly stuff we order on-line (although they are delivered by UPS or FedEx as often as the US Postal Service). Letters? Only rarely. In fact, I can't remember the last time we received a real letter, unless you consider letter-size bills to be letters. We get lots of bills. But if you're confusing the messages of billing notices with personal letters, you've got bigger problems than the postal service.
We also receive the occasional wedding or graduation announcement--and seasonal cards sent in recognition of religious or other holidays, especially Christmas cards. We get lots of Christmas cards, too.
What do we mail out? Not much, other than payment of a few bills and occasional, seasonal packages or returns. Oh, and Christmas cards. We send a lot of them, too. No letters. We use e-mail for that kind of thing. And the few bill payments mailed are for one-off or infrequent vendors. The rest are all paid through e-banking on the computer. Quick, easy, reliable.
But that's it. Mail isn't what it used to be when I was young, or even 15-20 years ago--before e-mail and competitive overnight package delivery, before inundating commercial junk mail and political advertising.
And the US Postal service isn't what it used to be either. Or, from what I've just shared, it's evident that they don't really do what they used to do, or at least as much of it. The mix of services is different. But what they do, it appears to me, they do pretty well. You know, in terms of friendly service, efficiency of work flow, on-time delivery, and mail delivered undamaged, that kind of thing. Pretty good, I'd say. Oh, and self-service mailing stations. Great idea. But if that's so, why are they losing so much money?
All this started in a conversation with Denny over dinner--my mailbox research and thinking about it, that is. We were talking about universal access to health care and the so-called "public option" for those who don't now have health insurance provided or can't afford it. I suggested the unthinkable. I suggested that we might derive some assurance and confidence about the government's potential for competent management in the effectiveness and efficiency of the USPS. (What was I thinking? Doesn't everyone use the postal service as a whipping boy for government inefficiency, even if I really can't figure out why?)
But Denny tried hard not to overreact, to treat the proposition--or at least the spokesman--with patience and respect. There was some loss of color in his face and a slight twitch to his widened eyes, but it passed instantaneously. He listened patiently, then said rather matter-of-factly, "They're losing millions." I said, "Really? Well that's not all that much for such a large enterprise in bad economic times." Nonplussed, he then added, "No, no, Greg. They're losing a lot of money. Maybe hundreds of millions. A lot. Really." "Oh," I said, "I guess I somehow missed that." "Yeah," he said, "so many people now use e-mail rather than write letters, and the recession is really hurting them, too." (But as patient and kind as he was with my blindness to the obvious structural changes in the postal service market, it seemed likely from the tilt of his head, the movement of his eyes in the side-long glance, that he hadn't fully bought onto my views of a competent post office and delivery service, either.)
How could I have missed this? For someone who tries to read everything credible about public issues, social, economic, and government issues, how could I have been so blind and deaf to this one? I'd just been looking past it, I guess.
Denny was right about the basic financial situation and the facts, but even he underestimated the size of the financial losses. And I think he and most everyone else may have underestimated the implications of these structural changes. I now think it is the beginning of the end of the US Postal Service as we have known it. It might even be the end of the US Postal Service, period, except as a regulatory oversight function. How's that for provocative?
First of all, this year revenues have tanked by 10%, and losses have moved into the $ billions, $1.9 billion in the 2nd quarter of 2009 alone. A US Postal Service news release (5.06.09):
WASHINGTON — The U.S. Postal Service ended its second quarter (Jan 1 – March 31) with a net loss of $1.9 billion, as the economic recession and longer-term financial pressures, such as the diversion of letter mail to electronic alternatives, continued to reduce mail volume and revenue. Despite aggressive actions to reduce costs and grow revenue, the Postal Service will likely face a cash shortfall of over $1.5 billion at the end of the fiscal year.
The Postal Service has incurred net losses from operations in 10 of the last 11 fiscal quarters. The year-to-date net loss is $2.3 billion, compared to a loss in the same period last year of $35 million. A significant portion of the losses over this period can be attributed to an unprecedented decline in mail volume. In the second quarter, mail volume totaled 43.8 billion pieces, down 7.5 billion pieces, or 14.7 percent, compared to a year ago.
The second-quarter results include operating revenue of $16.9 billion, a decrease of nearly $2 billion, or 10.5 percent, from the same period last year, and operating expenses of $18.8 billion, a reduction of $782 million, or 4.0 percent, from the second quarter of last year. Complete second-quarter results are contained in the Postal Service Form 10-Q report, available later today at usps.com/financials (click Form 10-Q under Quarter Reports) and also attached at the end of this release.
"The economic recession has been tough on the mailing industry, and we have seen an unprecedented decline in mail volumes and revenue that continued to accelerate during the second quarter," said Postmaster General John Potter during today's Board of Governors meeting. "We are aggressively realigning our costs to match the lower mail volumes, while also maintaining the high level of service and reliability our customers expect. We are also taking a number of steps to grow revenue."
So, how could I assume that market size or share was not an issue? Just not paying attention. The market for handling letters is drying up. More vendors are now also sending more bills on-line and having them automatically paid through e-banking. That market is shrinking. And they have very effective competitors in the package delivery market, even if the Postal Service performs well as a competitor in that market themselves. Market share is also a big issue there, even if their pricing is competitive.
The result? The US Postal Service has a huge over-capacity problem. It now has far more infrastructure--property, buildings, vehicles and, yes, employees--than is economically justified. The fixed-cost structure is way out of line with the demand for service and anything like reasonable, competitive pricing possibilities. Earlier this year, the USPS announced it was considering closing hundreds of offices. And only in the last month, it announced a program offering $15,000 to any post office employees willing to quit their jobs or retire early. It has begun--but it is just the beginning. For it appears evident to me that this structural change in the postal service market is also just beginning. Here's what it looks like to me:
Almost everything they do--all their services--will necessarily go on-line for just about everyone and every business. The only exception, of course, is the package delivery market, and that will be very well serviced by private competitors. The USPS can see the handwriting on the wall as they watch the hand-wringing, painful experience of newspapers and magazines as they wrestle with the flight to the internet of most all print media in pursuit of today's and tomorrow's interested readers. The Postal Service could be out of business in a decade, two at most. Let's talk more details and process.
First of all, more advertising will continue to move on-line. That's where more and more of their customers are seeking product and service information, and doing their shopping. And not just younger folks. Excepting the very old, all age groups have moved in that direction. Soon magazines will move toward sales of their on-line product. They'll have to. That's where the younger generations of readers go for news, newspapers and magazines now. Yes, in part that's because it's now free, but also because that is the most convenient, efficient way for them to access all information. It's their comfort zone. It's what they know. (And yes, both magazines and newspapers will move toward charging appropriately for their product; they'll have to do that, too.) I'm already there; that's what I do now, and I'm in my 60's. More of us "late middle aged" folks are also finding comfort and efficiency in getting our news and articles that way. That trend will only increase.
As those markets dry up for the Postal Service, as economies of scale for postal services continue to shrink, the cost and pricing of their service will necessarily increase on a unit pricing basis. And with the cost of letter mail, bills, and bulk mail advertising increasing, and the cost of internet alternatives becoming cheaper and more effective, it will just hasten the final decline and submission of the remaining customers of the Postal Service. Even those who may prefer to remain with the Postal Service will be forced to move by the relative cost to value received.
But what of the poor and technologically illiterate? They may be unavoidably deterred from participating in this move to the internet. And do remember that the US Postal Service is provided for in the US Constitution. Although it has been independent for some time, it is really more quasi-independent in that it is constitutionally under the oversight of the federal government--and under ambiguous constitutional language has always been treated as a monopoly, at least with respect to first-class mail. So what does that mean in this changing context? Does the federal government have to provide letter carrying for whomever may continue to want it, regardless of the number of people or businesses, or how much an uneconomic operation like that would cost?
I don't know the answer to that question, but at some point it becomes a ridiculously untenable approach to the problem. And I think it becomes a moot question if the government could, at that point, just drive a stake into the heart of the suffering beast. Wouldn't the better answer be for the government to allocate money to provide a simple, user-friendly computer with big keys to all who can't afford one or fear them--a computer with a simple e-mail program, an e-banking set-up, and internet access? How long could it be before they could be provided at a cost not more than $100-200? There could be simple instruction provided on how to use the three functions, augmented by a user-friendly program on the computer that takes you through each program one big-print-and-picture step at a time. There could even be a free technical call-in number. And for the indigent, free, cheap dial-up ISP service. All that would still be a lot cheaper that keeping open a USPS letter carrying function for a small percentage of people.
The only other function that the government would have to assume--and I think it is a necessity and their responsibility, regardless--is regulation and oversight of internet communications: e-mail, commercial or financial transactions, web and blog sites, everything. Who knows, the Supreme Court may even find an implied or constructive Constitutional requirement for the government to oversee the "mail," whether it's the pony express, post office letter carriers, or e-mail on the internet.
Alright, okay. I know all this is not going to happen tomorrow--or next year. And who needs yet another sea change in government service and cultural expectations right now? But it is coming. Sometime in the foreseeable future, some process like this is going to be coming at us. It's not a matter of choice. It's just the irreversible unfolding of internet technology and the unavoidable movement of all communications to it. So we may as well be thinking about it, right?
But my conclusions may not be what you think. As always, it's about larger questions of public needs and values, how to distinguish one public need from another, and how to most effectively deal with it in the context of our social, government, and market structures. It's all about the reasons why. So please, bear with me as we take a walk from here to there.
The founding fathers saw such critical public importance in the availability and reliability of the post--mail delivery service at a reasonable price, and universal access to it--that they provided for it in the U.S. Constitution. They were so concerned about this service that they provided for a government monopoly of letter carrying, at least that's how the US Supreme has interpreted the language. Some things are that important to the proper functioning of society, commerce and government. But times change, as we've discussed, and so does what's most important to the public and national interest.
At the founding of the Republic, public education wasn't yet broadly viewed as basic and critical to the good functioning of the country. Or more practically, there were higher priorities. Their attention was focused on the essential matters of government, political process, national defense--standing armed forces--and commerce. All those things required unfettered, unobstructed public communications--a public postal function--but not necessarily public education, not yet. Public education--such as it was--was the province of local townships. Some did it betterthan others; some did it poorly, or not at all. Anything resembling serious elementary or higher education was the province of religious schools and private schools serving the wealthy. Serious education was mediated by the marketplace. And it was dispensed very unevenly based on availability, price and the requisite wealth.
It would be some years before it became broadly evident to American government and political leaders that universal education was in everyone's best interest. It was a need, and should be a right. And over the next 100 or so years, it would become increasingly clear that an educated person was a better prepared and contributing citizen, worker, artisan, or professional of higher potential and accomplishment, a better taxpayer. At least a basic education was essential to the better functioning of the country, to society, commerce and government. And the more educated the population, the more benefit and value that accrued to the country.
Today most everyone takes universal education and its essential value for granted. No reasonably person doubts that--not in the US, not today. In fact, we wring our hands in genuine concern over the challenges of providing better education in many inner city and rural areas. Why? Again, better citizenship, stronger families, better jobs, more productivity, fewer criminals, and more taxes paid. These are the well-researched and understood consequences of delivering better education to those who now lack it most. It is viewed by most as a right of citizenship, but it is more than that. It is a responsibility, an obligation, of responsible, accountable government to a nation that aspires to continually reach higher and be more, individually and collectively. And as a society, we've come to understand that universal education, constantly improving education, and more of it for each and every person is essential to reaching that national ideal.
There is still a private market for higher education, and access is based largely on wealth and merit. People who prefer independent K-12 schools or private colleges are free to pursue the most expensive education that the market offers--and it is very expensive. But America's experience with public education remains the foundation of America's success, and its support and value of an educated public. And state-subsidized colleges and universities remain the sine qua non, the pumping heart of America's social, technological, and commercial advancement over the last century.
But America hasn't yet found a consensus about health care as a public necessity--or rather, as an essential public responsibility and service--even if the rest of the advanced world has. For the most part, we have been satisfied to allow it to be mediated by the private market place--excepting, of course, medical care for the military and veterans, government employee medical insurance, Medicare and Medicaid. (And these are important and successful "exceptions" we so willingly ignore or refuse to acknowledge in our public discussions.)
So, I'd like to take a longer look at the issues of the private health care market, and the case for universal access to public health care--or more accurately, to public health insurance or a "public option." But first, a few very important questions: What does the market do best? What products and services are best left to mediation by market mechanisms, producers, providers and pricing? And more important, what kinds of products and services, and demand for them, are poorly served by the functioning and characteristics of markets? Then, what might we have learned from our experience with letter carrying, the US Post Service, and public education?
First, in general, we know that free enterprise and free markets, wisely regulated, are the most creative and productive forces advancing the endeavors of man. By definition, through natural incentives, they seek to understand what people need and want, produce it and provide it to them. They do it to make a profit, to make money--and as much of it as possible. Money is the universal reinforcer; power and privilege, as well as ownership, inhere in it. They can provide products and services at the best level of quality and the lowest price--but only if they must, only if the markets are regulated to keep competition open and free, and to protect the public consumers' interests, welfare and health.
Under those conditions, producers and providers will continually compete to produce better products cheaper. And they understand market differentiation; they know there are many different sub-markets or quality levels and "price points" for the same products and services. There are many levels of income ranging from poverty to wealth, and many standards of taste ranging from the most utilitarian and mundane to the most sophisticated and attractive. It's all about what you can afford. When the market mediates, those of wealth get the best of everything; those with more middle incomes get the basics, for sure, and some of what they want and a few luxuries, too; the poor and those with marginal incomes struggle to provide for basic needs, sometimes failing.
Markets are very poor mediators of products or services that, as a matter of public policy, every citizen needs equal access to. They can't do it. Markets do not provide equal access to anything. They do not provide equal price, quality or service. You only get what you can pay for--no matter how much you need it and regardless of the reason.
Generally, there are only two ways for a government to provide equal access to public goods and services: either (1) the government provides them directly, e.g., the US Postal Service, military defense and related medical services, and public education, or (2) the government provides the poor and low income families with public assistance payments that allow them to buy products and services in the private market place, e.g., "welfare" payments to the poor. A third alternative could be government payments or subsidies to private market providers on sales to the poor or low-income, but that is just a variation on a public insurance program, isn't it?
An example. Equal access to effective k-12 education at an affordable price for all is not something the private marketplace will or can provide. It doesn't work that way. It takes a dominating public education system to provide reasonably high quality service of that type to all citizens. It is just the nature and needs of a universal public service, and the very different nature and functioning of markets.
Another. Military defense forces and related health care services provide an important example of necessary and effective government-provided services. They are effective, but also expensive. But no one is suggesting there should be a competitive market for our national defense services (other than the production of military weapons, equipment and supplies). Moreover, no one is suggesting that the military medical services organization does not provide full and competent service. The government is also capable of doing that quite well. Yes, they already provide a direct health care service program and do it well.
In the case of the US Postal Service, we see a very different type of service that is transitioning to a new medium. It is morphing right in front of our eyes. It is now more a utilitarian service that new and advancing technology will allow most all people to access in the private market place at a very modest price--requiring only modest government cost to supply and help the poor and technologically challenged. That is, there is no longer a public need to treat it as a government provided service, except for "welfare-like" support for low-income people.
So, where do the considerations and challenges of universal access to health care fall in all of this? Well, lets ask the questions. Does it arise to that level of public necessity and priority that it should be treated as a public service? For many, if not most people, the answer is clearly, yes. Most all the things said about public education can be said about health care. People need it to advance to meet their potential for education, valuable service and productivity, to be contributing citizens and taxpayers. Abraham Maslow's "hierarchy of needs" would suggest we cannot get to that place unless basic health care is as much a right of all as it is a need of all. Only then might poor children also be healthy children, and in their best state of readiness to learn. Only then might poor children be likely to grow up to be healthy, well-educated and productive citizens. And last I heard, there are now nearly 50 million Americans without access to basic health care. And the number is growing.
Of course, I have been avoiding the humanitarian issue, the moral issue. But that's because, distressingly, it carries so little weight and commands so little attention in the discussion. The Scriptures of my Christian faith place a very high priority on serving and healing the poor. Second only to love of God and then humanity. Other Abrahamic faiths, and most other faiths and philosophies also embrace that value or imperative. Non-religious people who count themselves humanists or humanitarians do, too. And yet, too often, we do not live those values; they do not seem to inform the personal and public decisions of our lives--or at least not enough to make a substantial difference. And so it plays out with regard to basic health care for poor and low-income people, too. I'll just leave you with that.
Every other advanced industrialized country concluded some time ago that some combination of considerations--including the demands of their citizens--dictated the need for universal public health care. And notwithstanding all the misinformation spread about them, they provide good medical service at half the cost in the US. Further, according to recent studies, the measures of longevity and general health of people in these country are at least as good as those in the US.
Most Americans want universal access to reasonable health care, too. They do. They also want cost control and cost reduction, the elimination of inefficiencies, waste, misappropriation, and fraud. Everyone wants that, too--individuals, businesses and, yes, the government. And we've already proven we can provide it effectively in our military medical services program. But not enough of us are ready for change to a broad-based public health care system. I do not find the reasons and reasoning strong or convincing--obviously--but that's just the way it is.
And that's okay, even if my analysis would seem to lead us to the conclusion that a direct-provider public health care system is the only way to achieve all our public health care goals. The reason that's okay is because we have an existing health care delivery system that is very different and more complicated than the postal service, the military, or the education system. And a major part of that difference and complexity is the existing system of health insurance providers.
Yes, we already have a big, complicated, and dysfunctional--yes, dysfunctional--patchwork quilt of a healthcare system. It serves many very well, but many poorly, and many not at all. And that complex, ad hoc system of health care products producers and health care providers are mediated by an equally complex and dysfunctional system of health care insurers, mostly private, but also including Medicaid and Medicare. Unfortunately, it has turned out to be in the profit interest of private health care insurers to deny service wherever possible, terminate insurance for high claims patients, and deny insurance to patients with pre-existing conditions. That is to say, they are not providing a reliable insurance product--which certainly works against their declared purpose and mandate and the public interest.
Still, it is the collective bargaining power of competitive insurance companies that makes the providers of health care services price competitive at all. (Although, the benefit of those lower, negotiated contract amounts is not extended to the poor and those without health insurance. Unconscionable). So even if they have been scumbags toward their customers, failed out of self interest in that customer service role, private insurers have played a role in keeping medical cost from being even higher. And though, most likely, that could more accurately be viewed as just negotiating an increase to their profit margins, it has been an ameliorating factor in the direct cost of medical services.
One could understandably conclude, then, that without a public health care system, US health care costs are controlled in part, at least, through the mediating role of health insurance. That leaves providers of health care services to compete with each other to some extent for the contracted business of private insurers. At least that seems a fair conclusion to me.
But most providers of health care services do not appear to meaningfully compete with one another for patients—at least not on price and personal service. Many don’t appear to compete on medical practices, either. Hospitals and doctors do not openly reveal the cost of their services. It is painfully difficult to learn the cost of hospital care or medical procedures in advance, even if just a rough estimate. And while personal service at some hospitals has improved as a matter of professional responsibility, most still view such personal service as defined clinically by narrow medical practice standards.
Worst of all, however, there doesn’t appear widespread ardor for embracing and implementing medical “best practices” or the most reasonable health care policies, from a clinical, personal service, social policy, or cost perspective. Cost management is discussed by the medical community, but seldom pursued meaningfully or successfully. Of course, the intertwined issues of tort reform (reasonable limits or alternatives to law suits and excessive jury awards against doctors), inflated professional liability insurance costs, and excessive medical testing and procedures, must also be addressed. None of this will likely improve with better regulation of private health insurers alone.
Regardless, it seems to me that whatever improvement to our health care system might be imagined, whatever public role is to be played, for now it must work through the mediating role of health insurance providers rather than a direct-provider system of health care services. And that is just what is happening. And more, it now appears it must work largely through existing private health insurers. That's just the way it is unfolding, politically.
No one is still seriously suggesting a "single payer" system at this point--that is, having the government provide universal public health care insurance for everyone. Oh, there are many progressives--I like that term better than "liberals"--who believe that, if we can't have a national, direct-providerhealth care system, then a single-payer health insurance system is the only way to really provide universal access, effectively mediate provision of health care services, and assure cost reduction. And I'd be lying--and you'd know it--if I suggested that my analysis didn't take me to the same place. But there are other practical realities and considerations. And we need to recognize them.
The private health insurance industry is big and it's on the field--even if it needs better rules and stronger referees to make it shape-up and play nice. By nature and circumstance those companies are self-protective and politically influential. So, we can only hope that clear, enforceable regulation and oversight will do the job. Regardless, it appears we have no choice but to give it a chance. And might it not be wise to just take one step at a time toward what could be a too-big-to-succeed, one-step change to a government single-payer system? It does makes sense, as far as it goes, even if I do accept it grudgingly. It's probably got to be the first step, it seems. And, the government would have to subsidize the poor and low-income folks through direct “welfare-type” payments to them, or “insurance-type” payments to the private health insurers. But this approach still does not go far enough to assure health insurance access and effectiveness for all. We still need a “public option.” And here’s why.
You don't have to spend a career in fortune 100 and 200 companies to know that you can't insulate profit-making companies from competitive market forces, and you can't take them out of their mission and operating approach to maximizing profits in those markets--regulations and oversight notwithstanding. The day after those regulations are passed and the oversight assignments are made, significant resources of those companies and their outside consultants and advisors will likely be devoted to pushing those regulations to their legal stretching point in order maximize their revenues (premiums) and minimize their costs (payments for healthcare). And on the second day, they will dispatch their in-house and outside lobbyists to try to influence legislators and regulators to provide helpful changes in those rules, or accommodating interpretations. This is not a complaint. It's the way the system works. There is even wisdom in it, except for the dominance of business interests at the expense of those of the public.
No, there can be little confidence or comfort in an answer that does not give the government a greater role in influencing private health insurers to provide excellent service to the public and complete compliance with the spirit and letter of laws and regulations. And that role could be effectively advanced as a competitor of private insurers, at least with respect to citizens whose employment does not provide it to them, or to those who cannot afford it--the so-called "public option."
The insurance companies and the anti-government folks are kicking up a lot of dust about the "public option," saying they cannot compete against the government--even though the government has indicated it would be a financially "independent" enterprise of government. Much like the US Postal Service, I guess--except with a narrower mandate, a more limited market. If the private insurers could not compete with it in that narrow market, it would more likely be because of the quality of the service and the product than the price.
Yes, the private insurers do have to make a profit for shareholders. But are they fearful that they cannot compete with a limited-market, financially independent government agency on price, efficiency and customer service, and still make a profit? If that is the case, if they cannot better exploit their advantages on economies of scale and operating leverage--not to mention their expertise--then the sooner we move to a single-payer government system for the whole market, the better. But insisting on a limited-competition "public option" is one good way to model and better assure the performance results we need in general--and, yes, take a limited, but useful step in better evaluating the wisdom of a single-payer system.
(Of course, for the medical service providers—hospitals, doctors, et. al.—the issue of cost management will remain a challenge. Adoption of the best medical practices and most reasonable health care policies will require those providers, private and public insurers, legal and regulatory reformers to all do their parts. What will be required are conditions that produce more effective market competition, more professional accountability, and more exacting legal and regulatory requirement.)
An Afterword:
You'll notice that I have not used the words "socialist" or "socialism" anywhere, in any way, in this lengthy discussion. The reason is because it represents such a dysfunctional and obsolete approach to understanding and solving government and public issues. The only legitimate questions are the ones we have posed here. What are the public issues to be addressed, the problems to be solved? What are "public" products and services, and which are best mediated by markets, which by government programs, and which by some combination of the two?
It's simply a matter of understanding what works, what doesn't, and why--and the implications for serving the needs of citizens and the best interests of the nation. A functional analysis. Period. This anachronistic term was long ago broadened to demonize any government programs needed to solve pressing social problems or efforts to wisely regulate business really needs to be relegated to that chapter in the history books culminating with the reprehensible, shaming influence of Senator Joseph McCarthy--and left there.
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