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Friday, January 05, 2007

Paul Krugman: First, Do Less Harm

Paul Krugman continues his discussion on how to improve health care:

First, Do Less Harm, by Paul Krugman, Commentary, NY Times: Universal health care, much as we need it, won’t happen until there’s a change of management in the White House. In the meantime, however, Congress can take an important step toward making our health care system less wasteful, by fixing the Medicare Middleman Multiplication Act of 2003.

Officially, of course, it was the Medicare Modernization Act. But ... in Bushspeak “modernize” is a synonym for “privatize.” ... The process actually started in the 1990s, when Medicare began allowing recipients to replace traditional Medicare ... with private managed-care plans in which the government pays a fee to an H.M.O. The magic of the marketplace was supposed to cut Medicare’s costs.

The plan backfired. H.M.O.’s received fees reflecting the medical costs of the average Medicare recipient, but to maximize profits they selectively enrolled only healthier seniors, leaving ... more expensive people in traditional Medicare. Once Medicare became aware of this cream-skimming and started adjusting payments to reflect beneficiaries’ health, the H.M.O.’s began dropping out: their extra layer of bureaucracy meant that they ... couldn’t compete [with Medicare] on a financially fair basis.

That should have been the end of the story. But for the Bush administration and its Congressional allies, privatization isn’t a way to deliver better government services — it’s an end in itself. So the 2003 legislation increased payments to Medicare-supported H.M.O.’s, which were renamed Medicare Advantage plans. These plans are now heavily subsidized. ...

The inability of private middlemen to win a fair competition ... was embarrassing to those who sing the praises of privatization. Maybe that’s why the Bush administration made sure that there is no competition at all in Part D, the drug program. There’s no traditional Medicare version of Part D... Instead, the elderly must get coverage from a private insurance company, which then receives a government subsidy.

As a result, Part D is highly confusing. It’s also needlessly expensive, for two reasons: the insurance companies add an extra layer of bureaucracy, and they have limited ability to bargain with drug companies for lower prices (and Medicare is prohibited from bargaining on their behalf). ...

The costs imposed on Medicare by gratuitous privatization are almost certainly higher than the cost of providing health insurance to the eight million children ... who lack coverage. But ... Democrats may not be able to guarantee coverage to all children because this would conflict with their pledge to be fiscally responsible. Isn’t it strange how fiscal responsibility is a big concern when Congress is trying to help children, but a nonissue when Congress is subsidizing drug and insurance companies?

What should Congress do? The new Democratic majority is poised to reduce drug prices by allowing ... Medicare to negotiate prices on behalf of the private drug plans. But it should go further, and force Medicare to offer direct drug coverage that competes ... with the private plans. And it should end the subsidy to Medicare Advantage, forcing H.M.O.’s to engage in fair competition with traditional Medicare.

Conservatives will fight fiercely against these moves. They say they believe in competition — but they’re against competition that might show the public sector doing a better job than the private sector. Progressives should support these moves for the same reason. Ending the subsidies to middlemen, in addition to saving a lot of money, would point the way to broader health care reform.

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Previous (1/1) column: Paul Krugman: A Healthy New Year
Next (1/8) column: Paul Krugman: Quagmire of the Vanities

    Posted by on Friday, January 5, 2007 at 12:15 AM in Economics, Health Care, Politics | Permalink  TrackBack (0)  Comments (8)

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