Paul Krugman: Death by Insurance

Paul Krugman returns to an important topic, health insurance. As I've stated many times, I'm in full agreement with his call for a single-payer system:

Death By Insurance, by Paul Krugman, Health Crisis Commentary, NY Times: For lower-income working Americans, lack of health insurance is quickly becoming the new normal. That's the implication of survey results just released ... The survey found that 41 percent of nonelderly American adults with incomes between $20,000 and $40,000 a year were without health insurance for all or part of 2005. That's up from 28 percent as recently as 2001.

Many of the uninsured reported spending their entire savings on health care and/or that they were having difficulty paying for basic necessities. And most uninsured adults reported cutting corners on medical care to save money — failing to fill prescriptions, skipping medications, going without preventive care.

Here's the other side of the same coin: health insurers' business is lagging ... And some investors are feeling the pain. Aetna's stock price fell sharply last week, on news that its "medical cost ratio" — a term I'll explain in a minute — rose from 77.9 to 79.4.

Taken together, these stories tell the tale of a health care system that's driving a growing number of Americans into financial ruin, and in many cases kills them through lack of basic care. (The Institute of Medicine ... estimates that lack of health insurance leads to 18,000 unnecessary American deaths — the equivalent of six 9/11's — each year.) Yet this system actually costs more to run than we would spend if we guaranteed health insurance to everyone.

How do we know this? The medical cost ratio is the percentage of insurance premiums paid out to doctors, hospitals and other health care providers. Investors are upset about Aetna's rising ratio, because it leaves less room for profit. But even after the rise..., Aetna spends less than 80 cents of each dollar in health insurance premiums on actually providing medical care. The other 20 cents go into profits, marketing and administrative expenses.

Other private insurers have similar ratios. ... Older Americans are covered by Medicare, which doesn't spend large sums on marketing and doesn't devote a lot of resources to screening out people likely to have high medical bills. As a result, Medicare manages to spend about 98 percent of its funds on actual medical care.

What would happen if Medicare was expanded to cover everyone? ... [T]his would mean covering 46 million Americans who are currently uninsured. But the uninsured already receive some medical care at public expense ... And Medicare manages to spend much more of its funds on medicine ... than private insurers. If you do the math, it becomes clear that covering everyone under Medicare would actually be significantly cheaper than our current system. And this calculation doesn't even take into account the costs our ... system imposes on doctors and hospitals. ...

Many pundits see red at the words "single-payer system." They think it means low-quality socialized medicine; they start telling horror stories — almost all of them false — about the problems of other countries' health care. Yet there's nothing foreign or exotic about the concept: Medicare is a single-payer system. It's not perfect, it could certainly be improved, but it works.

So here we are. Our current health care system is unraveling. Older Americans are already covered by a national health insurance system; extending that system to cover everyone would save money, reduce financial anxiety and save thousands of American lives every year. Why don't we just do it?

Previous (4/28) column: Paul Krugman: The Crony Fairy.
Next (5/5) column: Paul Krugman: Our Sick Society

Update: From Krugman's Money Talks:

Jim McEvoy, Brussels, Belgium: I believe your readers need to know how well socialized medicine works outside the United States. As an expatriate American, I have resided and worked in Belgium for the past 17 years.  

First of all, as a self-employed Belgian, I pay social security contributions that are capped at 12,000 Euros per year. That contribution includes my family's medical coverage except for an additional 165 Euros per quarter for hospitalization coverage.

Everyone can choose a family house doctor who manages their health file and basic care. If your child is too sick to get out of bed, that doctor makes a house call. Instead of paying 20 Euros for an office visit, you then pay 30 Euros. I have never seen a house doctor who had any staff. If you need to see a specialist, you simply find one and seek their advice, no restrictions in doing so. Belgium has some of the leading specialist in the world in various fields of medicine.

The results of this system are impressive. When my wife delivered both our children, the out of pocket expense was approximately 35 Euros each time. For normal deliveries they keep the mother in the hospital for one week to recover and rest. I know for a fact that in the United States, you are lucky to get 24 hours in the hospital for normal childbirth.

My older sister in Minneapolis and I in Belgium each had a procedure called a catheter ablation of the heart to eliminate an irregular heart beat. She spent $2,400 American for the procedure with full employee medical coverage, which was performed as an outpatient procedure under a mild sedative. My same procedure cost 70 Euros and I was fully sedated and hospitalized for two nights.

Prescription drug costs are also a huge difference. A common medicine I now need to take cost me 3 Euros for a three-week supply. I checked in the United States and that same medicine would cost $19. That's nearly four times the cost !

As far as I can see, the private sector control of health care in America has been a total failure. It's time to look for something that works — and works for everyone.

Paul Krugman: I didn't know about the Belgian system, but there's abundant evidence that European systems work far better than the U.S. non-system. We subject ourselves to enormous risks and poor care, and end up spending more money to do so.