The health-care war

The health-care war

: I am no fan of Paul Krugman’s; rarely make it all the way through a column. But today’s is a winner, for it rationally sets out the current choice in what I believe is one of the big two issues facing us the election (after the war on terrorism).

In other words, rising health care costs aren’t just causing a rapid rise in the ranks of the uninsured (confirmed by yesterday’s Census Bureau report); they’re also, because of their link to employment, a major reason why this economic recovery has generated fewer jobs than any previous economic expansion.

Clearly, health care reform is an urgent social and economic issue. But who has the right answer?

The 2004 Economic Report of the President told us what George Bush’s economists think, though we’re unlikely to hear anything as blunt at next week’s convention. According to the report, health costs are too high because people have too much insurance and purchase too much medical care. What we need, then, are policies, like tax-advantaged health savings accounts tied to plans with high deductibles, that induce people to pay more of their medical expenses out of pocket. (Cynics would say that this is just a rationale for yet another tax shelter for the wealthy, but the economists who wrote the report are probably sincere.)

John Kerry’s economic advisers have a very different analysis: they believe that health costs are too high because private insurance companies have excessive overhead, mainly because they are trying to avoid covering high-risk patients. What we need, according to this view, is for the government to assume more of the risk, for example by picking up catastrophic health costs, thereby reducing the incentive for socially wasteful spending, and making employment-based insurance easier to get.

A smart economist can come up with theoretical justifications for either argument. The evidence suggests, however, that the Kerry position is much closer to the truth….

My health-economist friends say that it’s unrealistic to call for a single-payer system here: the interest groups are too powerful, and the antigovernment propaganda of the right has become too well established in public opinion. All that we can hope for right now is a modest step in the right direction, like the one Mr. Kerry is proposing. I bow to their political wisdom. But let’s not ignore the growing evidence that our dysfunctional medical system is bad not just for our health, but for our economy.

You can debate his conclusion, of course — and I’d far rather see you debating that than all this Swiftie crap. That is what we should be spending our breath and bandwidth on, not mud.

  • Kelty

    Even a blind squirrel finds a nut sometimes.

  • http://opinionpaper.blogspot.com Brett

    If we, as a nation, implement any more elements of universal health care and broaden prescription drug benefits, it won’t be paid with today’s dollars. Such care can’t be pay-as-you-go, and the money hasn’t been collected for it because no such program exists.
    If implemented, who pays for the benefit that boomers get?
    My kids… and their kids… and their kids.
    How is that responsible?
    I’m unwilling to levy my children’s lifestyle for boomers.
    My solution:

    • Cap/restrict health care lawsuits to 133% of cost of care and lost wages. (The extra covers attorney fees.)
    • Reduce the regulation of the health care industry so that nurses/doctors can concentrate less on paperwork and more on patients.
    • Allow a doctor’s full legal history for their practice to be made public so that patients can visit a doctor informed of their likelihood to be sued.

    Other ideas?

  • http://www.theglitteringeye.com Dave Schuler

    I definitely agree with you here, Jeff. That’s the subject I’ve been blograzing (term coined by Moe Lane of Obsidian Wings to mean wandering back and forth among blogs) about all week.
    Unfortunately, reducing administrative costs as a solution to rising health care costs is a dog that won’t hunt. It’s necessary but not sufficient. The difference in administrative costs between the Canadian single-payer system and our system is about 15%. As long as the other factors that make up the cost of health care including physician salaries, hospital costs, and pharmaceutical costs continue to rise faster than the rate of inflation there are only three alternatives: increase the supply enough to stem the cost increases, reduce the demand enough to stem the cost increases, or subsidize the difference between the legitimate market value and the willingness to pay. The first won’t be acceptable to doctors and will take way too long, the second won’t be acceptable to consumers (it’s way too harsh), and we don’t have the money in the absence of real cost savings to do the third and live up to our current commitments without substantial increases in taxes (which will reduce growth and cost jobs) or borrowing (which will be inflationary).
    If there were an easy pain-free solution to this problem, we would have solved it already.

  • Robert Fulton

    That does it. I could tolerate your “Kerry lied story is mud.” When you start promoting Paul Krugman (for ANY reason, given his record) I’m out of here. I know that a rose can grow out of a horse turd and that we need new ideas on health care, but anything that supports that ___(person)__ words fail me…..

  • http://roxanne.typepad.com roxanne

    FYI: A recent Roper study found health care to be the #1 issue among “Influentials.”
    Terrorism, foreign affairs way down on the list.

  • GCW

    “That is what we should be spending our breath and bandwidth on, not mud.”
    And thank goodness Kerry and the Dems made Kerry’s record and plans for healthcare the centerpiece of their convention, instead of his record in Vietnam.
    My problem with the heathcare doomsday criers is that there is no cure for sickness and death. Insurance is essentially a gamble that you won’t get sick. People seem to be looking for a Deus Ex Machina which will save them from the sad fact that people get sick and have accidents and that it costs money to try to make them healthy again.

  • Eliza Dashwood

    Both these solutions seem like bandaids to me. Healthcare costs have soared because of new technologies, new drugs and new treatments.
    Higher deducticbles may discourage people from visiting the doctor for a cold but that doesn’t cost much anyway. They aen’t going to discourage people from going to the doctor for a real emergency.
    As Dave Schuler points out above, the costs of trying to avoid insuring high-risk patients are also trivial in the grand scheme of things.
    I’m Canadian and we have huge healthcare problems too. Like DS said, if there were an obvious way out, we’d all grab it.
    Ultimately the problem is that progress costs a lot of money.

  • h0mi

    Here’s an idea.
    Looking at America’s health care system and ignoring the distortions that the tax system (like ERISA) have caused in the delivery of health care will mean that any meaningful reform will get nowhere fast.
    Premiums for individuals cost more than premiums for groups and the primary reason for this is due to the clout of those groups; an insurance company is going to listen to Lockheed or the Feds or Pers when they threaten to cancel their insurance contract if rates for the upcoming year aren’t reduced.

  • George

    Even when Krugman isn’t foaming at the mouth he’s useless. I think Krugman may have been a lecturer for too long he prefers to dictate the answer rather than persuade.
    “The evidence suggests, however, that the Kerry position is much closer to the truth.”
    What evidence? For all I know he’s right but why should I take his word for it.
    “My health-economist friends say that it’s unrealistic to call for a single-payer system here: the interest groups are too powerful, and the antigovernment propaganda of the right has become too well established in public opinion.”
    This is a typical Krugman appeal to authority, except its a false authority. Health-economists are experts on the economics of health not the politics of health. If he wants to bolster this claim he should be appealing to lobbyests, or congressional staffers or preferably to someone with a name so that their authority can be judged by the reader instead of the author.
    As for the issue, I’d love to see a real debate about it but I’m not holding my breath.

  • Kat

    Small businesses or groups should unite under one umbrella to benefit from the large group rates.
    There is no easy solution. Outlandish legal suits like those of John Edwards bring up costs and unless they apply the laws in place against illegal immigration, there is no hope of reforming health care. Illegal immigrants cost over 10 billion a year–give that money to legal Americans who can’t afford health insurance–why is it free for illegals and not poor citizens? Why can illegals demand rights that legal citizens can not?

  • http://blogs.rny.com/sbw/ sbw

    Dang. Why is it that no one has asked both parties to explain how their health care proposals fit fundamental economics?
    Health care costs are health care costs. Period. They are neither too high nor too low, but, rather, not well adjusted. Adjusting factors are masked from the consumer — on the one hand, making it impossible for them to make personal choices and, on the other hand, making it impossible for health providers to adjust to consumer choices.
    You must have competition to have choice. You must understand true costs to have choice.
    The Republican alternative still leaves business as an unnecessary go-between and the Democratic alternative suggests that Government Knows Best. (Hah!)
    As you suggest, Jeff, a smart economist might justify either side, but anyone who has read “New Ideas from Dead Economists: An Introduction to Modern Economics” is in a better position than those economists to tell both parties to go back to the drawing board.

  • anne.elk

    I am no fan of Paul Krugman’s; rarely make it all the way through a column
    Yeah, I know what you mean. Thanks to World Nut Daily, Townhall, and Front Page Mag, I’ve learned to hate Albert Einstein, Francis Crick, Richard Feynmann, Adam Smith, David Ricardo, John Maynard Keynes, John Stuart Mills, George Akerlof, Joseph Stiglitz, etc.
    These guys are too shrill, they lecture too much, and they’re kind of hard to understand.

  • Robert Brown

    I have often wondered what our health care system would be like if employers were not involved and insurance companies actually sold insurance. Say, long term contracts that young people could enter into with larger deductibles (say $10,000) intended to pay costs that most people could not possibly pay and that most people would not encure. Individuals would then buy medical care like any other commodity. Government would be limited to a welfare function for those who cannot pay for care.
    This would conceptually put some control on demand, lower price. The problem with this is that, while we accept that high income people can buy better cars, eat more expensive food, ect., I think most people are uncomfortable with health care being distributed according to ability to pay.
    But, ultimately I think someone has to ration health care. Even if we had a government run plan as many liberals want, I doubt that we could raise taxes enough to give everyone unlimited care (even it it is only on “the rich”), thus government would be doing the rationing in some way.
    I’m sure Krugman likes Kerry’s plan since it shifts $1 trillion in costs onto the progressive income tax, thus onto a relatively small number of people. In the long run it is unclear to me that simply hiding health cost by shifting it onto a small number of people solves the underlying dilema.

  • Charlie (Colorado)

    A smart economist can come up with theoretical justifications for either argument.
    A more succinct indictment of the “science” of economics is hard to imagine.

  • Joe Baby

    John Kerry’s economic advisers have a very different analysis: they believe that health costs are too high because private insurance companies have excessive overhead, mainly because they are trying to avoid covering high-risk patients.
    Not really sure what the hell this means…
    But whoa for a minute on high-risk patients…nothing but complaints now about ‘not enough covered — yet everything still costs too much’. (In short, people don’t even want to pay the cost of their INSURANCE, let alone the actual costs of service.) Adding high-risk patients will send costs in the predicted direction. Fine. But as for how this “solves” anything is beyond me.
    If you want more things/people covered, or want more expensive things, it will cost you, um, more.
    Hey, and I’m not even a “Health Economist.”
    Let’s face it, we’ve perfected a system that diagnoses because of lawsuits, prevents you from choosing specific insurances, and spirals costs upward. Just dandy.
    Our collective gluttony is creating a health care system that resembles a chinese buffet. Yum.

  • Charlie (Colorado)

    All right, had another thought: can anyone come up with an example of a single-payer system anywhere that works, except as a mechanism for rationing health-care to people who can’t go private?
    I lived in Canada for a couple of years; it’s not a statistical sample, but I heard plenty of horror stories from people with whom I was in direct contact (eg, a distant cousin who had to wait six weeks for an “emergency” OB/GYN appointment after massive haemmorhaging, an ex-boss who was going blind, but couldn’t get the operation that would prevent him from going blind because, since he wasn’t blind yet it wasn’t crucial) and read plenty of news stories that suggest that ain’t it.
    As Krugman says, a smart economist can come up with any number of theoretical reasons why single-payer should work. But with lots of single-payer systems around, what reason do we have to suspect the theory has any connection to reality?

  • Matthew Goggins

    As soon as I read this post I grabbed a copy of the Times. I started reading, and what d’ya know, Jeff was right, this does seem to be a pretty reasonable Paul Krugman column.
    By the time I was done, I was actually grateful to Mr. Krugman for framing the health-care issue with a minimum of snarky condescension (I counted only about a half-dozen over-heated rhetorical flourishes).
    So should we have a Canadian-style single-payer system? Sounds like an excellent question; I would like to know how the Canadian system is set up and how well it works.
    Heck, my wife is a doctor at St. Barnabas Hospital in the Bronx, and I don’t even really understand how the money flows around in that place. Could Dave Schuler, the blograzer, suggest some good websites to look at?
    By the way, I was quite ready to post a comment blasting Mr. Krugman for his outrageous claim that
    the U.S. does worse than either country [Canada and France] by any measure of health care success you care to name – life expectancy, infant mortality, whatever
    but it turns out he’s right. I went to the website of the World Health Organization and I checked 17 health-care statistics for Canada, France, Australia (which also has government health-care), and the United States. Canada has the best nation-wide numbers, and the U.S. has the worst.

  • http://www.elflife.com/ carsonfire

    I don’t think we should be debating health care. There are just some topics that should be off-limits in politics. Those sick people speaking up are partisan operatives! Can we really afford another election cycle full of health care-related smears?
    Really, it makes every bit as much sense.

  • Dishman

    It’s called “bleeding edge technology”. If you want to be at the forefront of a technology, be it electronics, physics, medical or whatever, you bleed for it. This country is spending hundreds of billions of dollars every year to be on the bleeding edge of medical technology.
    I offer that one way to control health care costs would be to cut medical research. Without ongoing research, patents would expire and medications would become commodity. Without research, there would be no more expensive “experimental” treatments. It would pull us back from the “bleeding edge”.

  • Kat

    Aren’t Canada’s ministers meeting next week to reform a system that has badly eroded health care–closures of hundreds of hospitals, long waiting lists, peo[ple going to the US for tests and treatment, even that old coot, Chretien, got caught going to Minnesota, I think. And it costs working Canadians over 33% of salary while the people for whom it’s really free,those who don’t contribute, abuse it by visiting emergency for a chipped nail.
    And in France, if they take such good care, how come in a period of two weeks during August last year, more than 11,000 elderly French men and women died of heat stroke. Some nursing homes those were.!!

  • shark

    the U.S. does worse than either country [Canada and France] by any measure of health care success you care to name – life expectancy, infant mortality, whatever
    I dunno….in summertime, life expectancy in France seems to lower real quickly

  • shark

    and I’d far rather see you debating that than all this Swiftie crap
    That’s liberal codespeak for: “lets change the subject so Kerry doesn’t get hurt anymore”
    Jeff, it’s funny that you go to this line as soon as the official Kerry-DNC point becomes “lets talk about the issues”
    Too bad Kerry naver gave us issues to discuss.

  • Andy Freeman

    > Canada has the best nation-wide numbers, and the U.S. has the worst.
    In comparable populations?
    The US is an odd mix of first and third world. Canada is Wonder Bread, Baguettes, and mushu pancakes.

  • http://opinionpaper.blogspot.com Brett

    Ultimately, this comes down to a class argument.
    Should the rich shoulder a larger burden of buying health care for those that can’t afford it?
    Is health care a right that gives permission to those that can’t afford it to use the money of the rich?
    And why is it the responsibility of government to “solve” this problem? Is it because they can confiscate the money of those who can provide and redistribute it to those who can’t?
    I read recently that Canada is having problems keeping doctors, and I’ve heard that anecdotally from friends who live there as well. (I don’t know why this is, though. The report did not say.)
    I enjoyed Matthew Goggins’ comment, but I’m not ready to draw the connection between government-managed and better health. Though my Canadian friends think my medical life with 5 kids is much more stressful than theirs.

  • Eliza Dashwood

    The Canadian health care system has problems, no doubt about it. But then so does the US health care system and the German and the French. Every single system – private or public or public/private – has problems because health care costs more than it ever cost and we have more older people who are the prime users of health care services.
    ONe point that no ones brought up is all the money the drug companies pay to executives in salaries and share options. That money, just like outrageous litigation awards, gets sucked out of the system and put into the pockets of individuals who haven’t earned when it should be paying for more drug research or cheaper drug production.
    And folks, as a Canadian, I can tell you all that people here get top-rate emergency treatment. they don’t die because of the healthcare system. However, the waits for “elective” surgery like hip replacements, MRIs and some specialist appointments are ridiculous.
    Again, as David Schuler says, we’re all reasonably smart people. If one system were obviously the better one, we would all choose it.

  • Kat

    Canada invites the Third World and then ships them to the USA .
    Off topic, but I see Russia’s sensitive war on terrorism didn’t prevent some jihadis(maybe women) blowing themselves up…as well as a hundred or so innocents. The Leftist press is trying to deflect blame from muslims by telling us not to believe the islamic websites claiming responsibility. Why not accept the recommendations of the 911 Commission and call it what it is–a war on islamic terrorists.

  • Eliza Dashwood

    The thinking behind public systems Brett is that society as a whole does not benefit when productive people are bankrupted by catastrophic illnesses for which they are in no way responsible.

  • http://opinionpaper.blogspot.com Brett

    Eliza, you’re saying that much as a flood affects people and government money pours in to help the victims rebuild, so it is with health care?
    I disagree with that because a good portion of health problems are brought on by the personal habits of the person seeking health care, such as smoking, obesity, sedatory lifestyle, etc. These are accidents waiting to happen.
    Also, death is frankly expected for us all.
    If I were to shed any shred of humanity, I could say that a lot of health care goes not to the productive in our society, but to those who can no longer be productive. We’re simply extending their lives. So I could argue that society – as a whole – only benefits when the productive receive health care to make them productive once again.

  • http://opinionpaper.blogspot.com Brett

    Er, sedatory = sedentary…

  • stable dictum

    It’s all very nice and good to call for government to “reinsure” catastrophic risk, while railing against the economists’ bogeymen of adverse selection, moral hazard, and waste and fraud in private insurance companies.
    Note that the reinsurance proposed is *NOT* voluntary, it is mandatory.
    He’s talking about the government becoming *the* insurer for all the worst sorts of catastrophic, chronic and even fatal ilness.
    That means that it is the government that will draw the lines in the future about how much care is enough, how much is too little, and how much is too much. That means some abomination — blending cost/benefit analysis and the worst sort of PC egalitarian politics — applied to decisions about premies, cancer patients, AIDS patients, cardiac patients, the other morbidly ill, the extreme elderly.
    Sounds a lot more like a dystopia than a utopia.

  • Eliza Dashwood

    Uh, Brett, I,d love to see some statistics to back your argument up. this idea that if we all go to the gym more and eat better, health care problems will go away is sweet but misguided.
    and, yes, we do all die, but I think we all agree that people shouldn’t die young because they can’t get health care.
    If it is indeed true that one of the reasons companies are reluctant to hire is the cost of health benefits, than you are seeing one of the societal disadvantages of a system dependent on employers paying for a large portion of health care.
    Do you want government out of education and highways too?
    ps I favour a mixed system

  • http://opinionpaper.blogspot.com Brett

    Eliza, I did not say that all health problems would disappear. I said that “a good portion” of health problems are brought on for self-induced reasons. If you really insist that I find sources to suggest that eating better and exercising more reduces health risks, then I suggest that you not listen to me, but call your family doctor and ask that question.
    I was simply saying that I think it’s arguable to suggest that a person’s prevention of catastrophic illness is something “for which they are in no way responsible.”

  • http://www.theglitteringeye.com Dave Schuler

    Could Dave Schuler, the blograzer, suggest some good websites to look at?
    Brad DeLong posts frequently about health care. So does Marginal Revolution. Both of these sites have decent search capability. There have been several interesting discussions of health care on Steve Verdon’s blog lately.
    The Health Care Blog is quite interesting and has a number of excellent links and references.
    If you search around on David Cutler’s web page you’ll find quite a few great links.

  • John

    You can debate his conclusion, of course — and I’d far rather see you debating that than all this Swiftie crap. That is what we should be spending our breath and bandwidth on, not mud.
    Of course, Jeff, the ironic thing about saying this about Krugman is that in the column just before this one he obsessed about tarring the swift boat vets’ reputations, and tossed in a not-so-veiled shot at the general morality of today’s soldiers in Iraq (“Two words: Abu Ghraib” is how he put it).
    Commending Paul here is not a contradiction on your part, since you mention your critcism of Krugman’s style in general before going on to cite his latest column. However, it will be interesting to see if he opts to remain off the swift boat topic in his upcoming columns — and surely the RNC convention will give him more than enough material not to touch it — or if the swiftees’ charges have gotten so far under his skin he returns to contribute to the problem of campaign focus you’ve bee complaining about.

  • Joe Baby

    Most solutions proposed enable less negotiation between individual and insurance company (or doctor, or employer), or between the employer and insurance company (or government).
    As our choices diminish, the knee-jerk reaction is to rush towards even larger monoliths with even fewer choices.
    Don’t like the lack of choices now? Just wait until there’s only one that you have to deal with.
    The variable that has yet to be truly squeezed in the US systems is time…as in, how long are you prepared to wait for that knee surgery or hip replacement?
    Since we seem so hell-bent on defaulting our individual bargaining power, we better get used to the system getting worse.

  • http://www.theglitteringeye.com Dave Schuler

    Brett:
    Is health care a right that gives permission to those that can’t afford it to use the money of the rich?
    Well, Mr. Kerry has been asserting lately that health care is a right. Frankly, I don’t much care for that formulation since I’d rather reserve the term “right” to refer to something like speech that you don’t need someone else to exercise. The “right to bear arms”, for example, doesn’t mean that the government has to issue you a rifle.
    I’d prefer the formulation that health care is a benefit which the people of the U. S., as citizens of a wealthy country, wish to extend to themselves and their fellow-citizens.
    I disagree with that because a good portion of health problems are brought on by the personal habits of the person seeking health care, such as smoking, obesity, sedatory lifestyle, etc. These are accidents waiting to happen.
    I completely agree that it’s very desireable for people to take this kind of responsibility for their own well-being. But you’re missing something. What you’re describing here are efficiencies that won’t reduce the cost of health care. The buzzwords that need to be considered are “downwards inelasticity of income”.

  • http://opinionpaper.blogspot.com Brett

    Dave, I like how you phrased this.
    “I’d rather reserve the term ‘right’ to refer to something like speech that you don’t need someone else to exercise.”
    That was well said.
    “I’d prefer the formulation that health care is a benefit which the people of the U. S., as citizens of a wealthy country, wish to extend to themselves and their fellow-citizens.”
    That’s a slippery slope and the very argument that is the foundation for any taxation. Take out “health care” and insert whatever you choose. Germany, for example, a once-wealthier nation, has seen that its policy of virtually unlimited unemployment doesn’t reward society as a whole. And now they’re in a bind.
    “It’s very desireable for people to take this kind of responsibility for their own well-being. What you’re describing here are efficiencies that won’t reduce the cost of health care.”
    On a per unit basis, no. On a gross expense basis, yes they would.
    “The buzzwords that need to be considered are ‘downwards inelasticity of income’.”
    Back to class argument.

  • Frank Wilson

    Krugman says: “rising health care costs aren’t just causing a rapid rise in the ranks of the uninsured (confirmed by yesterday’s Census Bureau report).” But this is typical Krugman selective quotation. Here’s the full story: “the percentage of people in the USA without health insurance last year [was] 15.6% of the population
    …the highest since the share hit a peak of 16.3% in 1998.” Of course the great Bill Clinton was president in 1998. But it would not serve Krugman to reveal that the figure had actually declined under the evil Bush. When you play fast and loose with facts as Krugman does, you do not deserve to be taken seriously at all. Period.

  • http://acrosstheatlantic.com shell

    Last year, I needed an MRI. Under my HMO, I went to the place my doctor sent me to, underwent the procedure, then waited for the bill to come for my portion. No one could tell me ahead of time how much it would be.
    Now lets imagine Alternate Universe world 1. My insurance company says “We’ll reimburse you for up to $x for this procedure.” I get on the phone and call 3 different hospitals and get quotations. I choose the lowest quotations and pay for the difference between the insurance company’s contribution and my share out of a tax-deductible medical savings account.
    I’m the consumer, and I’m willing to pay my share. I just want control.

  • http://www.theglitteringeye.com Dave Schuler

    On a per unit basis, no. On a gross expense basis, yes they would.
    I’m sorry, Brett, I guess I didn’t explain my point clearly. It wouldn’t reduce expenses at all since if marginal economies are realized physicians, hospitals, pharmaceutical companies, insurance companies, etc. will raise their rates to maintain their current revenue levels. There’s no market economy in health care to keep it from happening.

  • Eliza Dashwood

    Well Brett, if you don’t think health care is benefit that a wealthy country should provide its citizens, we have an irreconciliable difference.
    Personally I agree with that proposition. the question for me is what mix of private/public is the best way to reach the goal.
    And yes, of course it’s better if people exercise and eat well, but it’s only a small part of a very big problem.

  • http://opinionpaper.blogspot.com Brett

    Dave, in the current medical community that might be a true statement because unlike other industries, we don’t see the expense up front, as shell suggested in the comment before yours. (Great point, shell.)
    Assuming no collusion between the providers, that’s the beauty of competition – to prevent of exactly what you describe. If price were known up front, then the consumer could choose and we would have service rise and price drop as much as the market could bear. And those providers that couldn’t keep up would drop, as we see in the expansion and collapse of other industries.

  • Brian H

    Here’s The Solution.

  • http://opinionpaper.blogspot.com Brett

    Actually, Eliza, I do agree with you. I think it needs to be a combination of public and private. As in your analogy, public education gives to children the knowledge they will use to later provide benefit to society as adults. By that same logic, I think health benefits for all children should be a cost that society needs to absorb because young families, just as they cannot pay for education on their own, they really cannot pay for health benefits on their own.
    Once adults, I think it can’t be open-ended. There has to be some expectation of self-sufficiency, with the exception of the catastrophic.
    Perhaps, just as parents today have college funds for their children that are tax exempt, there could be parent-provided health funds that are tax exempt to be used as medical savings accounts by the young adult entering life until they are truly on the job and self-sufficient.

  • http://blogs.rny.com/sbw/ sbw

    Can you all agree that, whatever health care system is installed, it must contain an ongoing process for improving techniques, encouraging economy, and assuring customer service?
    Okay. How?

  • Sam

    I can’t see how the core of Krugman’s statement of Kerry’s position makes any sense, unless health insurance is a monopoly (which it clearly isn’t):
    “John Kerry’s economic advisers have a very different analysis: they believe that health costs are too high because private insurance companies have excessive overhead, mainly because they are trying to avoid covering high-risk patients.”
    If there is competition for providing health insurance, then the obvious conclusion is that an insurance company could decrease their costs (and hence increase their profits or decrease their prices or both) by eliminating any such bureacracy.
    I suspect that Krugman originally had an argument about non-monetary barriers to access and nothing to do about costs, i.e. that most health insurance is employer based, and non-coverage of pre-existing conditions. Having the US government take over the role of reinsurance would make it less unprofitable to cover pre-existing conditions (and of course, I suspect Kerry would change the law to require coverage of pre-existing conditions–like New York State does.)

  • Andy

    John Kerry’s economic advisers have a very different analysis: they believe that health costs are too high because private insurance companies have excessive overhead, mainly because they are trying to avoid covering high-risk patients. What we need, according to this view, is for the government to assume more of the risk, for example by picking up catastrophic health costs, thereby reducing the incentive for socially wasteful spending, and making employment-based insurance easier to get
    +++++++++++++++++++++
    BULL GARBAGE-!
    IF the overheads are too high the grant anti-trust immunity and let the big get bigger. High risk patients die. Dead patients do not cost medical services. Why should the govt pick-up the high risk patient costs (because they have all that cigarette money?). Most boomers will be healthy up to their final months and then die. The greatest expense is in extreme measures during those final months. Why not make the souls comfortable and accept death as a part of life?
    The bigger problem is that the consumer is disconnected from the cost and payment cycle. If auto insurance were funded this way, it would be in the same dire position.
    The disconnected consumer has been told they are entitled to unlimited, free and can sue for unlimited malpractice should they be inconvenienced.
    The consumer is not making a buying decision. They are making a comfort and convenience for an entitlement decision. There are many solutions available. Most of those that involve the consumer in the buying decision drive down the costs.
    Unlimited ANYTHING will never cost less and will eventually be rationed.
    Only a fool believes that something good will come from unlimited and free services.
    PTBarnum was right. Tick, tick, tick,

  • http://libertycorner.blogspot.com Tom

    Actually, Krugman’s column is as full of holes as a stop sign in hunting season. I have too much to say about it here, so I’ll just have to refer you to my post, which is here:
    http://libertycorner.blogspot.com/2004/08/professor-krugman-flunks-economics.html

  • h0mi

    I’ve seen the WHO statistics and I’d like to question whether those stats are valid (comparing apples to apples, especially wrt infant mortality) or even reasonable measures of quality of health care.
    So many non health care related things affect life expectacncy; if younger people are dying because of homicide, suicide, accidents, specific incurable diseases, going to a single payer system doesn’t guarantee that any of these things will improve. Nor does it clearly demonstrate that the current system is failing. You don’t look at GDP and say “our education system is better than the others because more educated people make more money and our gdp (per capita) is higher than X, Y and Z.”

  • h0mi

    Make that some of the WHO stats. Not the other 15.

  • Shane

    Robert: “I have often wondered what our health care system would be like if employers were not involved and insurance companies actually sold insurance. Say, long term contracts that young people could enter into with larger deductibles (say $10,000) intended to pay costs that most people could not possibly pay and that most people would not encure. Individuals would then buy medical care like any other commodity. Government would be limited to a welfare function for those who cannot pay for care.”
    Funny you should bring that up. I recently had occasion to go without employer sponsored medical insurance. Being the responsible person I am, I immediataly bought a catastrophic care policy for something to the tune of 75.00 for six mos. (since then I have become employed again)
    Yes, the ded. was a grand, and it only covered 80% of the first 10,000 in costs. So if I wanted a flu shot, I had to reach into my wallet to pay for the service. If I drove my car into the nearest semi, and the docs turned me into the bionic man it cost me 3k. Sounds pretty damn fair to me!
    Before you all start beating me up, I would agree some provision needs to be made for preventative care to come at little or no cost. Yes, I do understand that there are those who cant afford 3000.00 (feel free to put in any number you like), but most Americans would not be bankrupted over that. It might hurt, I am at the low end of the income scale and it would hurt me, but I save a few bucks every month for just such an emergency.
    I don’t have any numbers to back it up, but Imagine if all of those “5 dollar office calls” (thats what my present insurance requires of me) were billed to the patient at the same level they are billed to insurance. There must be thousands of those a day. Wouldn’t that go a long way to covering the catastrophic illnesses that SHOULD be spread out over the many?

  • Charlie (Colorado)

    And folks, as a Canadian, I can tell you all that people here get top-rate emergency treatment. they don’t die because of the healthcare system. However, the waits for “elective” surgery like hip replacements, MRIs and some specialist appointments are ridiculous.
    Eliza, that’s exactly what I saw when I lived in Toronto and London Ont.; my cousin got emergency treatment for the haemorrhage, but then was left on high dose progesterone for six weeks waiting to see a gynecologist. My boss saved his eyesight be getting a job that was officially in the US, so he had private insurance and could get the surgery he needed.
    And the thing is that nobody goes without emergency treatment in the US either.

  • Robert Brown

    Krugman states that the per capita expenditure for health care is $4887. It would be instructive to see how much of this is incurred as routine care and how much is catastrophic illness. Any one have any information on that?
    It seems to me that society could ethically expect individuals to pay for routine care much as we expect them to pay for food, housing, clothing, ect. with welfare systems for the poor (probably more generous for health care since it is life and death). This would no doubt put downward pressure on routine costs.
    Unfortunately, Americans and most of the developed countries have come to expect all their health care to be provided “free” or at low cost by “someone else”, so we will never get there.

  • Charlie (Colorado)

    The problem with this whole argument is that there are already so many perverse incentives and so much actuarial idiocy in the US system that it’s hard to sort out anything in the data. Still, there are some obvious things:
    (1) corporations can buy insurance with pre-tax dollars, individuals must use post-tax dollars. This means individual insurance is at minimum about 16 percent more expensive than company-paid insurance.
    (A single-payer system would eliminate this problem, since it would all be paid for with some kind of tax; given the other examples of government efficiency, I wonder if the advantage wouldn’t be lost through inefficiencies.)
    (2) there’s no easy way to form a pool of risk; this means small companies have to pay relatively more per person.
    (A single-payer system enlarges the risk pool, but so would allowing insurance companies to treat their entire policy base as a single risk pool. The single-payer risk pool is bigger than any individual company’s policy base, but the marginal advantage becomes vanishingly small. This is why relatively big companies like Sun and IBM “self-insure”: it’s cheaper to simply pay the costs than to buy insurance. The mathematics of this aren’t instantly obvious, but it can be proven.)
    (3) HIPAA etc regulations make it nearly prohibitive for small companies to get health insurace if they can afford it.
    (I can’t decide if I think single-payer would change this; cynically, it seems more likely the companies would simply have the whole burden of HIPAA imposed on them no matter what, even the small ones that had avoided it before.)
    (2 and 3, by the way, are the base of “employee leasing” companies like Administaff, which outsources the whole HR thing … but adds profit margin to the deal. It’s a sign of the perverse incentives involved that the economies of scale mean that the complications of setting up Administaff’s HR operation in a whole separate company, including effective double taxation of the costs, plus a good bit of margin, is still far less expensive than doing small-business insurance and HR.)
    (4) The lack of any predictable bounds on malpractice awards means that the mathematical risk per doctor is very very high, and as a result, malpractice insurance is extremely expensive.
    (This is easily proven mathematically, which is probably why the discussion almost always is suborned with discussions of “incompetent doctors and greedy insurance companies trying to cheat sick babies”. The only way a single-payer system could help with this is if it included limits on malpractice awards; since you could simply limit malpractice awards without the other baggage, you can’t call this an advantage of single-payer.)
    (5) the malpractice poroblem means that lots of defensive procedures and tests are performed, which raises costs.
    (Many studies about this, but it’s easily confirmed simply by asking any random doctor. Single payer would have at best no effect on this without malpractice reform.)
    (6) the tax problems and risk-pool regulations mentioned above mean that insured people are nearly wholly insulated from medical costs. There is no economic incentive to hold the costs down.
    (Single payer would eliminate what little connectin people have now.)
    (7) medicare and required-coverage regulations make treating many insurance patients uneconomic — which means insurance companies and doctors have to transfer costs to people who are paying privately, or to better insurance.
    (Either single-payer wouldn’t change this, or single-payer would have to reduce coverage over the current regulations. No obvious advantage to single-payer there.)
    (8) the legal requirements that everyone be treated in emergency rooms, regardless of ability to pay, mean that the costs of emergency treatment are transferred to private patients and the insured.
    (Single-payer just means the transfers happen in Washington, instead of in the provider’s accounting department. The only way single-payer could improve this situation is if the costs of single-payer could be reduced below the costs of making an on-paper transaction in an accounting office.)

  • Sasm

    Robert Brown: “It seems to me that society could ethically expect individuals to pay for routine care much as we expect them to pay for food, housing, clothing, ect. with welfare systems for the poor (probably more generous for health care since it is life and death). This would no doubt put downward pressure on routine costs.”
    A good point. It seems to me that the paperwork handling costs for relatively inexpensive events like yearly physicals must be a significant part of the total costs for those procedures. Several medical blogs have had some coverage about (general) practitioners who’ve gone cash-only or (in a different vein) boutique/retainer medecine. Ah, here’s an article, hat tip to MedPundit: http://www.cbsnews.com/stories/2002/11/22/eveningnews/main530550.shtml
    “Determined not to hang up his stethoscope, Dr. Todd Coulter is trying an experiment of his own. At his small family practice in Ocean Springs, he has also sworn off insurance and charges $40 dollars cash per visit.
    “When we stopped taking insurance our overhead dropped immediately by $2,800 a month. Just dropped””

  • Sam

    Great post Charlie:
    Some amplifications.
    (1) Pretty much all employee compensation (indeed, the vast majority of expenses a corporation incurs) is paid for with pre-tax money, there isn’t a special exemptions for health insurance.
    If an health savings account could be used to pay for individual health insurance (this used to be not allowed, but I don’t know if or how the law has been changed since I paid attention…) then this particular price difference would disappear.
    (2) New York required community rating–essentially insurance companies can only have one risk pool for individual insurance in NY. I think there have been some undesirable interactions though since New York can’t require that all citizens buy health insurance. (Combined with requiring that preexisting conditions must be covered, this means that the price of health insurance went up for basically healthy people and way down for people with severe health problems like AIDS)

  • Sam

    There doesn’t seem to be much discussion of Bush’s proposal yet.
    Given that pre-tax health savings accounts already exist (with some rules and procedures which make it a little inconvenient to use) and catastrophic health insurance already exists, any proposals here could at best be pretty minor, probably the main change would be to allow for pre-tax dollars to be used to purchase the catastrophic insurance, streamlining any paperwork would be helpful but likely minor in effects. In other words, not much of a difference. Real reforms in the cost structure of health insurance would be incidental to this useful but minor proposals.
    So there you have the health care proposals as Krugman has chosen to relay them (haven’t read the actual proposals!): Bush proposes something nice but with marginal effects, Kerry proposes something which might help a different problem and probably have little effect on costs too, but would involve creating yet another governmental insurance company.

  • John (Florida)

    I would like to tell a true story and see if we can spot problems with health care elicited by it. This incident happened about five years ago and is how my friend related it to me.
    A friend of mine was an orthopedic surgeon in Long Island, NY. He had a strata of patients in terms of age and income. He had a problem with collections in his practice, but not from individuals. His problem was the medicare payments from the fed. gov’t were being delayed. Although many of his patients were wealthy, they qualified for medicare and thus used it as did most people their age. (Try and purchase regular full coverage health insurance past 65 years of age) Medicare regulations required that if he accepted any patient under medicare, he could not charge his other patients, not under medicare, more than he charged his medicare patient for the same procedure.
    This friend battled with medicare over their slow payment for years. Finally, when he had not received any payment for the work he had done on any medicare patient for 18 months, he reached his limit. He told me he made an appointment with the “medicare masters” and went and gave them a piece of his mind about the 18 month payment delay. Bad mistake. They told him that for all the office visit and exam charges for which he had billed exactly what medicare allowed, they had decided to lower the allowance for payment and thus he would have to reimburse all of his patients, not on medicare, the difference between the new allowance and the old allowance. He would not receive any payment from medicare until that reimbursement was accomplished.
    One would have to think through the costs to the orthopedist to comply with this. Also bear in mind that people having procedures not defined and covered by a medicare allowance have already probably been paying more than their fair share to compensate for the reduced fees received due to medicare regulations. This means those non-medicare fees will have to go up even more.
    The orthopedist decided that day to quit, referring all of his patients to another doctor.
    I would like to hear the people that believe more government intervention into the market of health care will correct this type problem, explain how. There is no free market recourse to the point of a gun (government). I would also appreciate knowing of an instance where truly free market competition has caused prices to rise.

  • daudder

    is it true that US health costs include the highest % of administrative costs of all industrialized countries?
    is it true that medicare/medicaid are MORE cost efficient?

  • h0mi

    (1) corporations can buy insurance with pre-tax dollars, individuals must use post-tax dollars. This means individual insurance is at minimum about 16 percent more expensive than company-paid insurance.
    (A single-payer system would eliminate this problem, since it would all be paid for with some kind of tax; given the other examples of government efficiency, I wonder if the advantage wouldn’t be lost through inefficiencies.)

    So would modifying the tax system and revamping laws (such as ERISA). A single payer system could end up turning into a subsidy for corporations with generous benefit packages; now those employees are taken care of by the state & companies with extensive and increasing medical costs have now shifted those to taxpayers.

  • Robert Brown

    h0mi: “A single payer system could end up turning into a subsidy for corporations with generous benefit packages; now those employees are taken care of by the state & companies with extensive and increasing medical costs have now shifted those to taxpayers.”
    Not really a subsidy, it would just change who pays for health care.
    Today health costs paid by employers are passed on invisibly to everybody in the form of higher prices, lower wages, less capital investment ect. If the federal government is the single payer from general revenue, the burden of healthcare cost is shifted to a relatively few higher income tax payers due to the progressive tax system.
    This is the real reason that liberals (especially people like Krugman)love single payer plans. They are always looking for ways to make “the rich” pay for a free lunch.

  • red river

    I have arrived late at this thread but, as a Canadian, I would like to correct the suggestion that Canada’s very favorable national health statistics owe simply to its population being all “white bread” and “baguettes”. There is a large poor immigrant pop. They have the same health services card I have. In my city a 14-year old Eritrean immigrant was just shot dead by drug gangsters. His shocked parents, apparently poor, are receiving help from the medical services that my high taxes help to pay. Robert Brown, I have no quarrel with that result.
    Where I do complain is that it may take me 18 months to get a hip replacement if I need one. Not enough surgeons or money available to pay them. That result is, as in America, a political issue.

  • Robert Brown

    red river:
    Your post illustrates the polar opposite of the hypothetical system I propose.
    You are paying high taxes for medical services, the supply and quality of which is determined politically, not by market forces. If you want a timely hip replacement, you have to convince your government to reduce the waiting time for all who want one by raising taxes even more or shifting resources from other procedures.
    Under the system I suggest, you (or your parents) would have purchased a long term catastrophic insurance policy and you would have been using some of your tax money to pay the premiums as well as saving for routine medical costs. When the time came that you needed a hip replacement, the market would likely offer you the option to purchase a timely procedure for a price.
    The Canadian system has the advantage of treating everyone equally at the expense of individual choice of cost and quality.
    My system has the disadvantage from an ethical standpoint of allowing some who are more economically successful to pay for better health care.
    Although I don’t have any evidence, I think my system would produce a more efficient and inovative health care system over the long term since everyone would be aware of what their care was costing them and what they were getting for it.

  • Charlie (Colorado)

    Sam:
    (1) Pretty much all employee compensation (indeed, the vast majority of expenses a corporation incurs) is paid for with pre-tax money, there isn’t a special exemptions for health insurance.
    Right. My point is that if, for whatever reason, someone wants to buy health insurance themselves, there’s a relative disadvantage.
    (2) New York required community rating–essentially insurance companies can only have one risk pool for individual insurance in NY. I think there have been some undesirable interactions though since New York can’t require that all citizens buy health insurance. (Combined with requiring that preexisting conditions must be covered, this means that the price of health insurance went up for basically healthy people and way down for people with severe health problems like AIDS)
    I’d have to look at the Real Data to figure out quantitatively the real effect, but to a first approximation that’s what you’d expect. IF the risk pool can be limited to relatively healthy people only, the total cost over the population in the risk pool goes down. The trick that gets you is if you limit your risk pool to a small enough group, like in a small company, while the expected total cost goes down, the hazard to the insuror per insured goes up relative to the total premiums income.
    That’s pretty cryptic, but it’s easy to see with an example. Let’s say that you expect to have one person per 100,000 who will need a million dollars of medical care in one year, and all the other people will need $100. then the total expected cost for the 100,000 is $10 million, and the real cost that year is $11 million. If you didn’t have the one big cost, the insurance company needs to get $100 per person to break even; with the big cost, the insurance company needs $110, and since it is a large company, you can be pretty confident that you’ll only have about one of those a year. $110 is the break-even premium.
    Now, if another company has 100 healthy people, the expected cost will be $100,000 and the insurance company needs a premium of $100 per person to break even. If you have the bad luck to have that one million-dollar person, though, the insurance company needs to collect $10,100 to break even. Now, that’s only a chance in a thousand, so if the premium is still set to $110 and company stays with the insurance for another 999 years it’ll even out. As if.
    If you look at something more like the real population, including the population of the uninsured, what you get is a situation in which there are somepeople who need lots of medical care, but are uninsured, and some people who need almost no health care and are also uninsured. If everyone were compelled to participate in health insurance and the costs were allocated uniformly, the net effect is that it’s a transfer of health care costs from the people who don’t need much health care, to the people who need lots. However, the average premium required to cover the costs is minimized.
    This doesn’t consider any efficiency issues, of course.

  • Charlie (Colorado)

    Robert, insuring only catastrophic costs has an advantasge shown by my same example.
    Let’s extend my example by thinking about a policy for the large firm that only pays for that million-dollar catastrophe. Now, everyone is paying the $100 out of pocket; they pay another $10 against the chance of hitting the anti-jackpot.
    So long as the catastrophic insurance risk pool is large enough, the catastrophic coverage will still be $10 per person per year; you can make a better case that this is fair to the healthy, because anyone could have a catastrophe, and the cost per person is low.

  • Matthew Cromer

    The US has lower life expectancy and infant mortality because we have fertility treatments for older women, which causes more multiple births and high-risk babies. Socialist medicine doesn’t pay for expensive luxuries like fertility treatments, organ transplants, MRIs, and other ridiculous expenditures.

  • Matthew Cromer

    Obviously my last post was tongue in cheek, for the sarcasm-impaired.

  • Matthew Cromer

    Obviously my last post was tongue in cheek, for the sarcasm-impaired.