As someone with limited background in economics (I’m referring to me, not Krugman), I have found Paul Krugman’s explanations of economic issues to be as lucid and straight forward as any I’ve ever read. As a physician who developed and taught a course in “Measuring and Managing Health Care Quality and Costs”, I do have some relevant background in economics at least as it applies to health care – and I can say that Krugman’s discussion on the economics of health care makes a world of sense to me.
This post first discusses basic principles relating to the economics of health care in the United States, especially as it relates to the question of what would be a good national health care policy. That discussion relies heavily on Paul Krugman’s discussion of the issue, from his book, “
The Conscience of a Liberal”.
Then, with those principles in mind, I discuss Krugman’s assessment of the health plans offered by the presidential candidates. This involves a discussion of the health plans of the three leading Democratic candidates and a discussion of the Republican candidates’ “plans” as a group. The reason that the Republican “plans” are discussed as a group is that they are all virtually worthless, so there little reason for going into much detail with them. I can only speculate why Krugman chooses to address the plans of only the three
leading Democratic candidates – I suppose that he doesn’t want to dilute his message by talking about candidates whom he considers to have little or no chance of winning the Democratic nomination. Most of us recognize that Dennis Kucinich has put forth the
best national health care plan of all the candidates. Based on the principles that Krugman discusses, he would undoubtedly agree with that statement in theory if he chose to discuss it – though he does believe that plan to have problems with political viability. That being said…
HEALTH CARE ECONOMICS AND POLITICS 101The woeful state of health care in the United StatesDespite the fact that the U.S. spends
53% more per capita than the next most costly developed country and more than twice as much per capita (more than $6,000 in 2004) as the median health care cost among developed countries, the U.S. health care system is rated by the World Health Organization as only the
37th best in the world.
The main basis on which the U.S. health care system is rated so poorly compared to most of the world’s developed nations is the large percentage of uninsured people in our country, who can neither afford health insurance nor catastrophic health care. The United States is, in fact,
the only developed country that doesn’t offer its citizens universal health care. About 15% of Americans are currently uninsured, representing about
47 million U.S. citizens. That accounts for a substantial part of the explanation for why life expectancy in our country lags behind most other developed nations: a 2000 World Health Organization report showed the United States to rank
24th in world life expectancy, and a 2006 report showed our
world ranking dropping to 27th. A
2006 report on infant mortality rate, which is a more sensitive indicator of the quality of a nation’s health care than total life expectancy, ranked the U.S. as having the 2nd highest infant mortality rate among the developed nations of the world.
The bottom line is that, compared to other developed countries, the U.S. spends far more on health care and yet has a comparatively inferior health care system.
The reason why the U.S. health care system is so expensive yet inferior to that of most developed nationsThere is a single cause that underlies most of the excessive cost of health care in the United States, as well as its inferior quality. That cause is the fact that most health care insurance in our country is supplied by private corporations.
The main goal of private insurance corporations in the United States, as with all corporations, is to make a profit. They attempt to increase their profits in two ways that result in reduced health care: They attempt to withhold health insurance from unhealthy people, and they refuse to honor health care claims from their insured clients whenever they can get away with it.
These practices not only reduce the health care that people receive, but they also increase its costs. Weeding out unhealthy health insurance applicants costs a lot of money. So does fighting over health care payments with patients or health care providers. And health care providers too spend a lot of money fighting over payments with insurance companies. All of these things, plus the several layers of bureaucracy that are often involved with these systems, increase administrative costs and therefore drive up the cost of health care. The end result is that
31% of health care costs in the U.S. are administrative costs.
And that is not the only reason for the high health care costs associated with private health insurance. There are also perverse financial incentives involved, such as refusal to provide preventive health care and the use of inefficient systems (such as outpatient CT scan facilities).
All of these problems would be greatly reduced or eliminated with a government sponsored single-payer health system. When a government accountable to its people is responsible for providing health care, then the goal is to provide health care rather than to make a profit. The result is greatly reduced administrative costs and better health care for less cost.
Political barriers to government sponsored universal single-payer health careBefore considering what an ideal universal health care system would consist of it is worth while to consider the political barriers to a government sponsored universal single-payer health care system:
Insurance corporationsInsurance corporations make huge profits out of the current health care system. Every American who receives health insurance directly from the government (as in Medicare or Medicaid) represents reduced profits for insurance companies. Consequently, insurance companies are bound to provide fierce political opposition to any plan for increasing the government role in directly insuring people. They were a major factor in the defeat of the Clinton health plan in the 1990s.
Pharmaceutical corporations Pharmaceutical corporations also make huge profits out of our current health care system. U.S. citizens pay much more for prescription drugs than do citizens of other developed nations. An accountable U.S. government that supplied health insurance directly to its citizens would be likely to put an end to the excessive costs of prescription drugs in our country because it would have the power to bargain down prices.
Right wing ideologuesRight wing ideologues began to take control of the Republican Party in 1980, with the election of Ronald Reagan to the Presidency. After the election of 1994 they had substantial control of Congress. Right wing ideologues are intent on reducing the role of government in our country by dismantling FDR’s New Deal. Therefore, it would be a horrendous setback for their goals to have universal national health care legislation enacted in our country. Ironically, the right wing ideologue William Kristol explained the reason why passing a universal national health care plan is so important to our country (although he meant his explanation in a negative way). In a
Wall Street Journal editorial in 1993,
he wrote:
Passage of the Clinton health care plan in any form would be disastrous. It would guarantee an unprecedented federal intrusion into the American economy. Its success would signal the rebirth of centralized welfare-state policy.
In other words, as Paul Krugman points out, the main fear of the right wing ideologues is not that universal health care will fail, but that it will succeed.
Uninformed ordinary AmericansLastly, another political barrier to the passage of universal national health care is uninformed ordinary Americans. Specifically: They are concerned about cost – not understanding that the costs would be less, not more; and they are concerned that a universal health care plan would interfere with their choice of health care provider – a belief which the above noted categories of political opposition vigorously try to encourage.
The components of a practical universal health care plan Krugman recommends four components for a national universal health care plan, which he feels represents the best compromise between an ideal plan and a plan that that will reduce the political barriers to the point where the plan is likely to be enacted into law. The first three components are based on economic and medical reasons, and the fourth component is based on political viability:
Community ratingCommunity rating means that insurers are prohibited from charging different premium prices for different patients, based on their health status. This principle is necessary because without it, insurance companies can deny care to or charge prohibitively expensive prices for people with preexisting medical conditions or other risk factors. Thus, community rating is necessary to ensure that health care is available to everyone.
Subsidies for low-income familiesAdequate subsidies for low-income families are necessary in order to ensure that all Americans can afford the health care insurance that they need.
Mandatory coverageIn the absence of mandatory coverage there will always be some people who will choose not to purchase health insurance even though they can afford it. Under the community rating rule they could then purchase health insurance if they get sick, thus driving up the cost of health care and making it more expensive for everyone else. Or, they would receive health care in emergency rooms at taxpayer expense, which would also drive up health care costs for everyone else. Thus, the rationale for mandatory coverage is based on an economic argument. Without it, some people will game the system, thus increasing costs for everyone. Mandatory health insurance coverage is analogous to the principle of mandatory taxes.
Public-private competitionThough Krugman says that, for many of the reasons discussed above, a government sponsored single-payer universal health care plan is the best and least costly plan we could have, he feels that such a plan would probably not be politically viable at this time. Thus, he is afraid that if our next President tries to push such a plan through Congress it will encounter the fate of the Clinton health plan of 1993, and we will then be without universal health insurance for several more years.
To make the plan more politically viable, Krugman suggests that people be given the choice of purchasing government provided insurance or purchasing insurance through a private insurance company (or sticking with their current private plan).
This would have two
political advantages over a single-payer plan. First, it would be less expensive in the sense that it would require less taxes to pay for it. Economically, that advantage would be only apparent rather than real. What we would save in taxes would be more than cancelled out by out-of-pocket expenses for those who purchased private rather than government insurance. But Krugman believes that it would be more politically palatable because it would be less expensive up front, and many voters would not recognize the cost savings of a single-payer plan, given the propaganda that would be sure to come from political opponents.
The other political advantage of giving people the choice of government vs. private insurance would be that such a plan would be less susceptible to accusations that people wouldn’t be able to exercise their choice of doctor. Again, we are talking about a perceived rather than a real problem. Single-payer plans are perfectly capable of allowing people to choose their own doctor. They require that everyone obtain their insurance through government, but can still allow complete freedom of choice of doctors. Nevertheless, Krugman feels that a single-payer plan is likely to be a political liability, given the distortions that are certain to be introduced by political opponents.
I don’t know how valid Krugman’s concerns of political viability for single-payer health plans are. But nevertheless, his idea for compromise seems quite worth while to me. True, a single-payer plan would be less expensive and provide better medical care than a plan where a choice is allowed between government and private insurance plans. Undoubtedly, many people would initially choose private insurance, and for the reasons discussed above, private insurance is more expensive and leads to inferior health care compared to government provided insurance.
However, Krugman’s idea of an ideal compromise plan would almost certainly lead to a single-payer plan or something very close to it before very long. Before long, people would recognize that government insurance is superior to private insurance, with respect to both cost and quality. As people recognized this they would switch to government insurance. And when enough people did this the insurance companies would just fade away.
KRUGMAN’S EVALUATION OF THE PLANS OF THE PRESIDENTIAL CANDIDATESPaul Krugman feels that it’s imperative that we get universal national health insurance (more on that below). He also believes that in order for it to happen any time soon, our next President must address the issue thoroughly and accurately during this presidential campaign, so as to prepare the American people for it. Consequently, he has been following and commenting upon developments very closely, perhaps more closely than any other journalist:
Krugman praises Edwards’ planIn February of 2007, with the unveiling of
John Edwards’ health plan, Krugman wrote an
editorial about it in the
New York Times. He began by saying that promises of universal health insurance don’t mean much unless accompanied by specific details. He likened rhetoric without details to George Bush’s promises of “compassionate conservatism”.
Then he said, “And former Senator John Edwards has just set a fine example”.
He noted the details in Edwards’ plan that were similar to other good proposals. And then he added “But Mr. Edwards goes two steps further”. After describing those steps and why they’re good ideas, he concludes by saying:
So this is a smart, serious proposal. It addresses both the problem of the uninsured and the waste and inefficiency of our fragmented insurance system. And every candidate should be pressed to come up with something comparable.
Yes, that includes Barack Obama and Hillary Clinton. So far, all we have from Mr. Obama is inspiring rhetoric about universal care – that's great, but how do we get there? And how do we know whether Mrs. Clinton, who says that she's "not ready to be specific," and that she wants to "build the consensus first," will really be willing to take on this issue again?
To be fair, these are still early days. But America's crumbling health care system is our most important domestic issue, and I think we have a right to know what those who would be president propose to do about it.
Krugman describes the Obama plan as second bestWith the unveiling of the Obama plan in late May,
Krugman had this to say:
Back in February John Edwards put his rivals for the Democratic nomination on the spot, by coming out with a full-fledged plan to cover all the uninsured. Suddenly, vague expressions of support for universal health care weren’t enough: candidates were under pressure to present their own specific plans. And the question was whether those plans would be as bold and comprehensive as the Edwards proposal.
Last week Barack Obama, after getting considerable grief for having failed to offer policy specifics, finally delivered a comprehensive health care plan. So how is it?
Krugman goes on to mention a bunch of good points about the Obama plan. Then he concludes:
So there’s a lot to commend the Obama plan. In fact, it would have been considered daring if it had been announced last year.
Now for the bad news. Although Mr. Obama says he has a plan for universal health care, he actually doesn’t, a point Mr. Edwards made in last night’s debate. The Obama plan doesn’t mandate insurance for adults. So some people would take their chances and then end up receiving treatment at other people’s expense when they ended up in emergency rooms. On the whole, the Obama plan is better than I feared but not as comprehensive as I would have liked. It doesn’t quell my worries that Mr. Obama’s dislike of bitter and partisan politics makes him too cautious. But at least he’s come out with a plan.
Senator Clinton, we’re waiting to hear from you.
Clinton joins the gameWhen Hillary Clinton finally came out with her plan in September 2007,
Krugman had this to say about it:
Senator Clinton delayed a long time before coming out with her own plan – a delay that created a lot of anxiety among health care reformers, and may, as I’ll explain in a minute, be a bad omen for the future. Still, this week she did deliver a plan, and it’s as strong as the Edwards plan – because unless you get deep into the fine print, the Clinton plan basically is the Edwards plan. That’s not a criticism; it’s much more important that a politician get health care right than that he or she score points for originality. Senator Clinton may be politically cautious, but she does understand health care economics and she knows a good thing when she sees it.
With regard to the long delay in the Clinton plan, Krugman has this to say:
Even if the Democrats take the White House and expand their Congressional majorities, the insurance and drug lobbies will try to bully them into backing down on their campaign promises. That’s why the long delay before Senator Clinton announced her health care plan made supporters of universal care, myself included, so nervous – a nervousness that is not completely assuaged by the fact that she finally did deliver. It’s good to know that whoever gets the Democratic nomination will run on a very good health care plan. What remains is the question of whether he or she will have the determination to turn that plan into reality.
Krugman nails the Republican plans Krugman sums up the Republican “plans” as a group:
There won’t be a serious Republican alternative. The health care plans of the leading Republican candidates, such as they are, are the same old, same old: they principally rely on tax breaks that go mainly to the well-off, but will supposedly conjure up the magic of the market. As Ezra Klein of The American Prospect cruelly but accurately puts it: “The Republican vision is for a world in which the sick and dying get to deduct some of the cost of health insurance that they don’t have – and can’t get – on their taxes.”
But the G.O.P. nominee, whoever he is, won’t be trying to persuade the public of the merits of his own plan. Instead, he’ll try to scare the dwindling fraction of Americans who still have good health insurance by claiming that the Democrats will take it away. The smear-and-fear campaign has already started
Krugman calls out Obama on his use of right wing talking points to criticize his rival DemocratsThen just last month Krugman decided that he had heard enough of Obama’s attacking the more solid plans of his rivals from the right, and it was
time for him to respond to those attacks.
Obama’s attacks on his Democratic rivals center on the provision that the purchase of health insurance will be mandatory under their plans. As I explained above, the mandatory provision is needed for the economic health of a universal coverage plan. But Obama criticizes that provision with his complaints that: a mandatory provision would be unenforceable; some people will not be able to afford it; and on ideological grounds (the government shouldn’t tell people what to do).
With regard to his claim of unenforceability, we have had mandatory purchase of auto insurance in this country for a very long time (for the same reasons that it is needed for health care), and that’s worked out pretty well. And mandatory health insurance has worked out quite well in European countries.
With regard to the claim that some families wouldn’t be able to afford health insurance, that is well addressed in the Edwards and Clinton plans by subsidies for those who otherwise couldn’t afford it.
With regard to the ideological objection, that’s just plain right wing rhetoric. The mandatory provision for health insurance purchase can be considered the equivalent of a tax – such as we require for our Social Security program.
Worse than the limitations in Obama’s own plan are the charges that he is leveling at his rivals. Krugman explains the dangers of that:
My main concern right now is with Mr. Obama’s rhetoric: by echoing the talking points of those who oppose any form of universal health care, he’s making the task of any future president who tries to deliver universal care considerably more difficult.
I’d add, however, a further concern: the debate over mandates has reinforced the uncomfortable sense among some health reformers that Mr. Obama just isn’t that serious about achieving universal care – that he introduced a plan because he had to, but that every time there’s a hard choice to be made he comes down on the side of doing less.
SOME ADDITIONAL THOUGHTSThoughts on negative attacks against democrats using right wing talking pointsI have previously
expressed my poor opinion of the practice of Democrats who attack their Democratic rivals on unjustified grounds during their campaigns. What is even worse is when those attacks come from the right. When that happens Republicans are given a gift. Their talking points are given credence by the fact that they can be shown to come from the mouth of a prominent Democrat. That not only hurts our chance of having a Democratic President in 2008, but it is bad for the specific cause in question – in this case health care – as well. That is bad for the Democratic Party and bad for our nation.
What concerns me just as much about Barack Obama is his tendency to attack the Democratic Party in general. Here is
a link to a post where I discussed that issue, and I won’t discuss it further here.
Thoughts on “bipartisanship”“Bipartisanship” may sound to many like a good idea in theory, and certainly espousing it tends to make a politician sound “moderate”. But when dealing with a group of far right ideologues such as those who have taken over today’s Republican Party, it’s not always such a good idea. Krugman devotes the last page of his book to this issue:
The central fact of modern American political life is the control of the Republican Party by movement conservatives, whose vision of what America should be is completely antithetical to that of the progressive movement. Because of that control, the notion, beloved by political pundits, that we can make progress through bipartisan consensus is simply foolish. On health care reform, which is the first domestic priority for progressives, there’s no way to achieve a bipartisan compromise between Republicans who want to strangle Medicare and Democrats who want guaranteed health insurance for all. When a health care reform plan is actually presented to Congress, the leaders of movement conservatism will do what they did in 1993 – urge Republicans to oppose the plan in any form, lest successful health reform undermine the movement conservative agenda…
To be a progressive, then, means being partisan – at least for now. The only way a progressive agenda can be enacted is if Democrats have both the presidency and a large enough majority in Congress to overcome Republican opposition. And achieving that kind of political preponderance will require leadership that makes opponents of the progressive agenda pay a political price for their obstructionism – leadership that, like FDR, welcomes the hatred of the interest groups trying to prevent us from making our society better.
The crucial importance of universal health care to our countryKrugman ends his chapter on health care by discussing why it is crucially important that we get universal health care:
The principal reason to reform American health care is simply that it would improve the quality of life for most Americans…
There is, however, another important reason for health care reform. It’s the same reasons movement conservatives were so anxious to kill Clinton’s plan. That plan’s success, said William Kristol, “would signal the rebirth of centralized welfare-state policy” – by which he really meant that universal health care would give new life to the New Deal idea that society should help its less fortunate members. Indeed it would – and that’s a big argument in its favor…
Getting universal care should be the key domestic priority for modern liberals. Once they succeed there, they can turn to the broader, more difficult task of reining in American inequality.