When Discussing Heath Care, Paul Krugman Should See A Doctor

On July 25, Nobel Prize-winning economist Paul Krugman wrote a column entitled "Why markets can't cure healthcare" in which he listed reasons for which the free market was unsuited for health care.

The tone of the column is condescending (or smug, perhaps? the difference escapes me), as he repeatedly knocks over the straw men he uses as "weaknesses" of the market in healthcare. However, I feel he mostly repeats the talking points uttered by those who favor of government-run healthcare, but -- as is typical -- without any data or sound analysis to justify his position. (Presumably, Krugman's Nobel Prize grants him immunity from having to provide supporting evidence for any of his claims.)

Sadly, the New York Times closed the comment period for this column, so I'll just share my thoughts here.

His first whopper is that the "big bucks are in triple coronary bypass surgery, not routine visits to the doctor’s office."

Wrong, and not only a "little" wrong, but "a lot" wrong. As in "billions of dollars" wrong. In 2006 (the most recent year for which data is available), Medicare payments for all bypass surgery (not just triple-bypass surgery) totaled $2.9 billion.

By contrast, in the same year Medicare paid $13.5 billion for office visits of mild to complex decision-making. These office visits represent an enormous 12.2 percent of total Medicare payments to doctors for all services and procedures. In other words, one out of every eight dollars that Medicare paid physicians in 2006 went to Krugman's piddling office visits.

So, Krugman's unsubstantiated claim notwithstanding, the "big bucks" in healthcare are with office visits, which represent a dollar expense 450 percent greater than bypass surgery. (All data are from the CMS Data Compendium.)

Krugman later states that health care "must largely paid for by some kind of insurance," and that "[c]onsumer choice is nonsense when it comes to health care. And you can’t just trust insurance companies either — they’re not in business for their health, or yours."

Insurance is necessary for SOME -- but by no means all -- healthcare costs. And anyone who mentions "consumer choice" in the same sentence as "health care" is only displaying to the world how ignorant he is. Since the 1940s/1950s, employers have been given preferential tax treatment over individuals for purchasing health insurance, with the obvious result that virtually all Americans under age 65 obtain their health insurance from their employer. Most employers offer employees a limited number of insurance "choices" (in most cases, either an HMO or a PPO, and that is it), which do not even include some of the newer packages that are more appropriate for younger workers, such as health-savings accounts or high-deductible plans). So, the vast majority of "consumers" already have very little "choice" about which insurance policy they purchase.

Krugman's comment about not being able to "trust" health insurance companies is specious and meaningless. Does that mean that people cannot "trust" their auto insurance companies, their life insurance companies, their homeowners' insurance companies, etc.?

Insurance companies need to be regulated, to be sure. But, can you trust the government, either? And, if not, who is going to regulate the government? The answer: no one. Not when the government is making the rules that will govern oversight. I would rather take my chances with a greedy insurance company that has oversight -- rather than the government, which will have no oversight, is subject to political pressure, and can always justify denying treatment for the greater good (i.e., taxpayers).

People who conduct business transactions based on "trust" -- rather than on contracts -- are destined to get fleeced, whether they are purchasing insurance or are purchasing a car. No one relies simply on "trust" when transacting with an insurance company, so Krugman's claim is just utter, misleading nonsense that ignores every aspect of contract law, business, and economics -- which is ironic, since the statement is coming from a Nobel Prize-winning economist.

Krugman states that "private insurance has much higher administrative costs than single-payer systems."

The fact that private insurance companies cost more, administratively, than public-sector insurance is a convenient falsehood for those in favor of government-financed or -controlled healthcare.

In actuality, the so-called financial "advantages" that the government demonstrates over private insurers largely derive from outsourcing to private enterprises. As a result of the outsourcing, Medicare does not have to pay union wages, infrastructure costs, or leasing/rental fees. Additionally, Medicare spends very little on reviewing insurance claims, with the result that administrative costs are kept low, but fraud is rife in Medicare.

Lastly, Krugman states that "in health care, the free market just doesn’t work."

If Krugman wants an example of how free-market principles work -- and work well -- in health care, he need look no further than a medical treatment in which government regulations are minimal, and insurance coverage is almost non-existent: laser eye surgery.

When laser-eye surgery first hit the market, costs exceeded $2,500 per eye. Approximately ten years later, per-eye costs had dropped to $1,000 per eye, with greatly improved quality.

That is how the free market works when not strictured by excess regulation: lower costs, improved quality, continuing innovation.