

Paul Krugman: Why markets can’t cure healthcare - mellis
http://krugman.blogs.nytimes.com/2009/07/25/why-markets-cant-cure-healthcare/

======
ThomPete
The problem with health care is no amount of money will ever be enough.

It's one of those areas where you can spend and spend and spend and you will
still be far away from satisfying the needs we have.

The Danish model that I grew up with is ok, but don't expect treatment that
are even half that of a good American hospital.

Put on top of that the fact that we are "discovering" (or inventing) more and
more sickness that we can then threat which people expect the hospital to take
care of.

Perhaps the real trick is to tax those treatments that are extremely both
important and expensive and let the insurance companies take care of the
milder forms of sickness. That way if technology makes what used to be
expensive treatments easy and cheap they can be pushed into the private
market.

Don't know, it's a tough nut to crack.

~~~
mellis
It may be that no amount of money will ever be enough, but that money can be
spent well or it can be spent badly. Doctors can prescribe an unnecessary
procedure because they're paid for it or because they fear malpractice claims.
Or they can prescribe an expensive drug or surgery with a high chance of
saving your life. In America, we don't do a very efficient job of spending our
health care dollars. In Denmark (where I'm living now), you may or may not get
treatment as good as in an American hospital (you should try some of the
public ones before you judge). At least you get the treatment you need
regardless of your ability to pay, and without bankrupting you in the process.

~~~
cwan
Given the amounts that are spent both by public and private actors, you should
qualify your statement. Clearly, vast amounts are being inefficiently spent
through Medicare. The question though is that if government isn't already good
at spending the money through medicare, what makes anyone think that if you
give them the whole system to run, it will be any better?

~~~
mellis
What makes you think insurance companies spend money efficiently?

For one thing, they tend to have much higher administrative costs than
publicly run health care programs. See, for example, Wikipedia's article on
health care in the US:
[http://en.wikipedia.org/wiki/Health_care_in_the_United_State...](http://en.wikipedia.org/wiki/Health_care_in_the_United_States#Administrative_costs)
or this blog post by Ezra Klein: [http://voices.washingtonpost.com/ezra-
klein/2009/07/administ...](http://voices.washingtonpost.com/ezra-
klein/2009/07/administrative_costs_in_health.html)

There are also all the reasons cited in Krugman's post.

Then there's the fact that the U.S. spends about twice as much on health care
as any other developed nation and gets results that aren't clearly better
overall. Is it a coincidence that we have the largest component of private
spending?

If the insurance companies aren't already good at spending money on health
care, what makes anyone think that if you give them the whole system to run,
it will be any better?

~~~
cwan
I think that even most private healthcare advocates suggest that we do need to
ensure that those who need the care get it - and one way to do so is for
governments to cover premiums in order to do it. But to suggest that we need
to completely dismantle our existing system seems rather drastic as we do get
some significant benefits including the level of medical innovation that the
US supplies the world. Granted, if the US is subsidizing the rest of the world
through inefficient spending domestically this isn't ideal either.

Just a reminder: [http://www.gallup.com/poll/102934/majority-americans-
satisfi...](http://www.gallup.com/poll/102934/majority-americans-satisfied-
their-own-healthcare.aspx) \- instead of working at the people who aren't
satisfied with their insurance or don't have any, we'd rather create an
entirely new system from scratch?

As for higher administrative costs, as a number cruncher and one who has
worked with non profits, this number can be both juiced and reduced depending
on the operational strategy that's taken. For instance, despite higher
administrative expenses, medicare fraud (15+%) is thought to be considerably
higher than private healthcare - so there's a trade off here between
administration and waste elsewhere. I'm not saying that this is necessarily
the case here but given the fraud numbers, that case does seem compelling.

I'm not fond of the US insurance industry as a whole given that it's all third
party payors (ie your employer chooses your insurance, not you) which
introduces all sorts of wacky results but I find it odd that they wouldn't
rather give users of the system more power rather than centralizing it with
governments. Again - look at the stunning er, competence with which the bail
out package has been run.

also fyi - [http://www.washingtonpost.com/wp-
dyn/content/linkset/2005/07...](http://www.washingtonpost.com/wp-
dyn/content/linkset/2005/07/23/LI2005072300409.html)

update - apparently administrative costs are higher not lower for Medicare
than private insurance, check this link out:
<http://www.heritage.org/research/healthcare/wm2505.cfm>

~~~
utnick
_I think that even most private healthcare advocates suggest that we do need
to ensure that those who need the care get it - and one way to do so is for
governments to cover premiums in order to do it._

Is anybody talking about a plan like that? I haven't heard anything about it,
and I would think the GOP would be touting it if thats what they wanted. Most
republicans I've heard either seem to be for inaction or for a health care
bill that doesn't do anything for the uninsured/needy

------
cwan
"There are, however, no examples of successful health care based on the
principles of the free market, for one simple reason: in health care, the free
market just doesn’t work. And people who say that the market is the answer are
flying in the face of both theory and overwhelming evidence."

I'm quite curious where it has even been attempted (I'm assuming that Krugman
is aware that it's difficult to prove a negative). There are submarkets where
markets are being tried - prescription eye glasses for instance.

There are all types of insurance that cover complicated risks as well - this
doesn't mean they are uninsurable (excess of loss coverage on any variety of
things). But I think Krugman's biggest failings is in making a convincing
argument that all healthcare is necessarily expensive. Back to the
prescription eyeglass example - where the competition between opticians,
optometrists and ophthalmologists have made costs rise considerably less than
healthcare costs as a whole. Further, if you look at the innovations in
ambulatory care centers, there have been dramatic reductions in costs.

Finally, let's also be reasonable about government run healthcare that has its
own set of issues with spiraling costs and often lower standards of care. As a
Canadian, you often see the effects of rationing - ie people wait. People die
in the waiting line. The system is still quite expensive and is set to become
even more so given demographics. It is however an interesting debate - where I
worry though is given the US is the dominant innovator in healthcare, will the
tinkerings to how and what incentives are offered dramatically reduce
innovation? Despite being an obviously imperfect system (which one is perfect
for that matter?), most Americans at least say they are satisfied with their
own healthcare insurance. Are these really then acceptable tradeoffs to move
to a largely government run system - especially given the level of competence
we have seen them run the recent stimulus packages?

~~~
projectileboy
Most Americans are satisfied with their health care because most Americans
have employer-provided insurance, and so are utterly ignorant of the costs
involved. Unfortunately for these people, the skyrocketing costs will affect
them, too, and soon - either through flattened or depressed wages, reduced or
eliminated health coverage, or both. With insurance premiums rising 10 - 20%
annually, it's only a matter of time.

~~~
cwan
And arguably the best way to control said costs is through introduction of
competition and also giving people choice (with cost trade offs). Isn't the
alternative government price controls? One of the arguments that Greg Mankiw
makes is that at least with private institutions you have choice however
limited, to move to another institution whereas this isn't the case with
government.

I'm not sure that healthcare costs will necessarily increase over time - there
are some pretty stunning developments in area of ambulatory care with dramatic
savings for insurers (not to mention improvements in quality of care at the
same time).

~~~
mechanical_fish
_I'm not sure that healthcare costs will necessarily increase over time_

From the Centers for Medicare and Medicaid Services, via the Kaiser Family
Foundation:

<http://www.kff.org/insurance/upload/7692_02.pdf>

 _Spending on health care, which is a projected to be 17.6% of the U.S. gross
domestic product (GDP) in 2009, has consistently grown faster than the economy
overall since the 1960s._

 _In 1970, U.S. health care spending was about $75 billion, or $356 per
resident, and accounted for 7.2% of GDP._

 _Health care spending has risen about 2.4 percentage points faster than GDP
since 1970._

Please tell us the source of your touching faith that this rather well-
established long-term trend -- one which has already bankrupted millions --
will spontaneously reverse itself.

~~~
cwan
[http://www.ifc.org/ifcext/che.nsf/AttachmentsByTitle/Hc09_Be...](http://www.ifc.org/ifcext/che.nsf/AttachmentsByTitle/Hc09_BeverlyPhilip/$FILE/Beverly+Philip.pdf)

I should add as well that just because we're spending more on healthcare
doesn't mean that it's getting more expensive. We may just be consuming more
and better care. Here's a case for that argument:
[http://gregmankiw.blogspot.com/2009/07/keeping-animial-
spiri...](http://gregmankiw.blogspot.com/2009/07/keeping-animial-spirits-
alive.html)

------
mhb
_How to Cure Health Care_ by Milton Friedman:
<http://www.hoover.org/publications/digest/3459466.html>

------
unignorant
One can agree with (almost) every specific point Krugman makes, and yet
disagree with his conclusion.

I don't think many economists would claim that free markets offer a perfect
solution regarding health care. Rather, they would argue that the alternatives
(for example, a government run system) are worse.

~~~
tome
Well then they're wrong, because government run systems work better in Western
Europe and Canada than the US private system.

~~~
njl
Your contention is interesting. Let us compare cancer survival rates.
<http://www.medscape.com/viewarticle/561737> Breast cancer survival rates in
the US are 90.1%, versus 79.0% in Europe. The prostate cancer survival rate in
the US is 99.3%, as compared to 77.5% in Europe.

We get better health care in the US.

The US also subsidizes drug discovery for the rest of the world. In the late
90's, I worked for a company that made robots used for drug discovery. Every
once in a while, they would put up a chart showing year over year growth.
There was a healthy, steady climb until the Hillary health care initiative.
The company almost went out of business. Drug companies froze spending on drug
discovery because it wasn't worth their while to spend the hundreds of
millions to bring a new drug to market if the US was going to go to a single-
payer system. US drug prices pay for R&D, and all the countries with enforced
pricing get a free ride.

~~~
cabalamat
> Breast cancer survival rates in the US are 90.1%, versus 79.0% in Europe.
> The prostate cancer survival rate in the US is 99.3%, as compared to 77.5%
> in Europe. We get better health care in the US.

You conclusion doesn't follow from the data. The only conclusion you could
make from that data is that the US has better care for prostate and breast
cancer than Europe.

Most people don't die of these diseases. Indeed, most people don't die of
cancer. So we should be looking at survival rates for all conditions, i.e.
life expectancy.

As it happens, most (all?) western European countries have longer life
expectancies than the USA, and all spend less on healthcare. If you wish to
conclude that the US system is the best one, your conclusion isn't supported
by the facts.

~~~
rdouble
_As it happens, most (all?) western European countries have longer life
expectancies than the USA_

The average life expectancy in the EU is 78.7 and in the USA it's 78.06,
according to Wikipedia.

~~~
cabalamat
Bear in mind that western Europe != the EU.

In 2004 and 2007 12 countries from central and eastern Europe joined the EU,
with lower standards of living and (presumably) healthcare. The western EU
countries are more comparable with the USA, since they have a more similar
standard of living.

------
cwan
A rejoinder/rebuttal by another prominent economist -
<http://gregmankiw.blogspot.com/2009/07/trust.html>

------
known
<http://en.wikipedia.org/wiki/Flexicurity> FTW.

~~~
laut
Private healthcare FTW. You have a better chance of surviving cancer in the US
than in Denmark.

[http://mjperry.blogspot.com/2008/07/cancer-survival-
rates.ht...](http://mjperry.blogspot.com/2008/07/cancer-survival-rates.html)

US healthcare is not a pure market based system, though. The regulations make
it very expensive.

\- an expat Dane

~~~
jstevens85
Private health care can coexist with a system of Universal Health Care
Coverage. Yes, the Canadian system is almost entirely run by the government,
but there is no reason that the US most copy the Canadian system. In
Australia, 40% of hospital services are delivered by privately run hospitals.

------
DanielBMarkham
_There are, however, no examples of successful health care based on the
principles of the free market_

This is easy to refute.

Flash back 100 years. People had healthcare they received from a family
doctor. Insurance was non-existent, and the free market reigned.

In fact, it was the _success_ of the free market in healthcare that led -- and
continues to lead -- for more and more complicated, expensive treatments that
save more and more lives.

I see three problems with markets and healthcare:

1) Insurance policies are so obfuscated that nobody understands what they are
buying. Government needs to step in here and create standard insurance policy
baselines. This will allow me to make an informed decision.

2) The people receiving healthcare have little or no input into cost control
-- the people controlling costs have no "skin in the game" when it comes to
value and quality of care. This decoupling needs to be fixed to encourage
individuals to monitor and control their own costs.

3) If society has a greater interest in making sure there is a basic level of
healthcare for all, as it does with say automotive insurance, then it should
be a law for all people to have personal health insurance that covers these
catastrophic scenarios. This would also mean allowing all insurance to be tax
deductable and decoupling insurance completely from employers. It should be
completely portable and associated just with the person.

Compared to some of the huge plans I've seen, these are really easy to
describe. A bill could be just a couple of pages, and most Americans could
understand exactly what is being passed. Instead of trying to have one huge
law "fix" the problem, it simply provides some definitions and takes one huge
problem and breaks it up into hundreds of millions of little problems that can
be solved various ways.

Why we continue to think that some legislative body can create gargantuan one-
size-fits-all solutions is beyond me. Evolution, machine learning, market
theory, chaos -- lots of real, hard science says that solutions are iterative,
incremental, and adaptive. Not complex and static.

~~~
sokoloff
I have a hard time figuring out how an individual healthcare consumer would
have any rational reason to "monitor and control their own costs"? If I'm
sick, I want to be made better. If I have cancer, I want it cured, etc.

There's no point at which the average person with a reasonable prognosis for
even 1 more year of life says "gee, that sounds expensive, perhaps I should
just die instead, so as to control my own cost to society [or my insurance
company]."

~~~
DanielBMarkham
I would suggest that insurance policies be required to send a certain amount
back to the purchaser each year in the form of a check -- say 20% of premiums.
The total amount would be reduced by the amount of services used that year.

 _If I'm sick, I want to be made better. If I have cancer, I want it cured,
etc._

I completely agree that if you have a life-threatening illness cost is not an
option. But as a healthy young-person, when I get a cold or something I just
take some aspirin and wait to get better. Same goes for ear infections. There
is a lot of room for flex in how people get treatment for non-life-threatening
illnesses. What the stats show is that the less skin in the game people have,
the more likely they are to go to the emergency room for things like common
colds.

