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Monday, November 07, 2005

Paul Krugman: Fixing Health Care

With so many companies such as General Motors and Delphi reducing medical benefits, with Wal-Mart's recent plans to cut healthcare costs by screening out high medical cost job applicants, with recent discussions about reducing the government's role in economic security, including healthcare, and with demographic realities in front of us, Paul Krugman examines the most efficient means of satisfying our health needs of the future, and what it will take to get there. He sees two factors standing in the way, prejudice that does not allow us to get over mistaken ideology that the private sector is always more efficient than the government, and the inability to overcome our pride and admit that other countries may have better ideas than we do in this area:

Pride, Prejudice, Insurance, by Paul Krugman, NY Times: ...Employment-based health insurance is the only serious source of coverage for Americans too young to receive Medicare and insufficiently destitute to receive Medicaid, but it's an institution in decline. ... The funny thing is that the solution - national health insurance ... - is obvious. But to see the obvious we'll have to overcome pride - the unwarranted belief that America has nothing to learn from other countries - and prejudice - the equally unwarranted belief, driven by ideology, that private insurance is more efficient than public insurance. Let's start with the fact that America's health care system spends more, for worse results, than that of any other advanced country. In 2002 the United States spent $5,267 per person on health care. Canada spent $2,931; Germany spent $2,817; Britain spent only $2,160. Yet the United States has lower life expectancy and higher infant mortality than any of these countries.

But don't people in other countries sometimes find it hard to get medical treatment? Yes ..but so do Americans. ... The journal Health Affairs recently published ... a survey of the medical experience of "sicker adults" in six countries, including Canada, Britain, Germany and the United States. ... It's true that Americans generally have shorter waits for elective surgery ... although German waits are even shorter. But Americans ... find it harder ... to see a doctor when we need one, and our system is more, not less, rife with medical errors. Above all, Americans are far more likely than others to forgo treatment because they can't afford it. ...

Why does American medicine cost so much yet achieve so little? ...[W]e treat access to health care as a privilege rather than a right. And this attitude turns out to be inefficient as well as cruel. The U.S. system is much more bureaucratic, with much higher administrative costs, ... because private insurers and other players work hard at trying not to pay for medical care. And our fragmented system is unable to bargain with drug companies and other suppliers for lower prices. Taiwan... offers an object lesson in the economic advantages of universal coverage. In 1995 less than 60 percent of Taiwan's residents had health insurance; by 2001 the number was 97 percent. Yet ... this huge expansion in coverage came virtually free: it led to little if any increase in overall health care spending ... The economic and moral case for health care reform in America... is overwhelming. One of these days we'll realize that our semiprivatized system isn't just unfair, it's far less efficient than a straightforward system of guaranteed health insurance.

I agree. As discussed extensively at this site, there are important market failures in the provision of social insurance, moral hazard is one problem, adverse selection is another, the inefficiencies from fighting over who pays the bills identified by Krugman is yet another, that make the private sector provision of social insurance less efficient than public sector provision.

[See this NBER paper for more on the insurance value of government provided health insurance. See "Passing the Buck" for more from Krugman on this topic.]

    Posted by on Monday, November 7, 2005 at 12:06 AM in Economics, Health Care, Market Failure | Permalink  TrackBack (0)  Comments (20)


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