Paul Krugman: Why markets can’t cure healthcare
krugman.blogs.nytimes.com
krugman.blogs.nytimes.com
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.
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... or this blog post by Ezra Klein: http://voices.washingtonpost.com/ezra-klein/2009/07/administ...
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?
Just a reminder: http://www.gallup.com/poll/102934/majority-americans-satisfi... - 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...
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
Administrative percentages are lower for medicaid than for private insurance mainly because people on public insurance spend a lot more medical dollars than those covered by the private sector. Since administrative costs usually tie to recipient, you have less recipients receiving more money, driving down percentages.
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
The first 20% of heath care spending goes increasingly far. The last 20% is pure waste. The problem is people want to try and help the old live forever so medicare is a black hole that will suck this country dry. Unfortunately I don't think we are going to have a cap on spending if you have less than a 20% chance of being alive in one year.
PS: Want to make heath care cheaper pay for the first 100$ of any drug / month if and only if it has zero advertising.
But isn't this exactly the problem in the model?
Most people can't afford the high risk expensive treatments so you are basically just bankrupting them.
The expensive treatment is the treatment that we "really" need, but also that which is without reach for most of us.
By keeping the expensive treatment in the public domain as long as the private sector hasn't found a way to commodify it. So that people in general have access to it, seems to be a fair way of doing it.
If only the rich can afford treatments that are expensive you could might as well keep the old system.
Look at the Japan model where public money is used to drive costs down but there is a side channel for private hospital rooms, in home care, homeopathy, and other things which provide little benefit vs cost.
Basically, everyone get's the high reward treatments, but when it comes to drugs which might possibly reduce your risk for X slightly, well that's up to you.
PS: If it's cheep and does little it's still expensive relative to gain.
Nothing will change for those who are well off, but for those at the bottom it will be great.
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?
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).
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.
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...
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.
It's not about government vs. private market, but about whether a society is willing to pay in solidarity with their peers for the less often but expensive and perhaps complicated procedures trough taxation.
Or whether they think that it is better to have a system where those who can afford get the best treatment and pay through their insurance.
IMHO a modern society finds a balance between what to lift collectively and what to make a personal responsibility. Not because it is moral just, but because it is financially a more useful model as long as it is to expensive to run through the private system.
But again, it's not black and white, there are many arguments for and against.
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.
Is it because you think the public plan would negotiate drug rates too low?
Don't the major private insurance plans already negotiate drug rates?
It is true that America is an innovator in health care, but I don't think that will change when the govt is signing the checks.
We also have the best missiles, bombs, and tanks. And all of that is govt funded.
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.
The average life expectancy in the EU is 78.7 and in the USA it's 78.06, according to Wikipedia.
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.
If you compare the complex mess in the US to a simpler federal-based system, of course the simpler one looks better. However, remove all regulations and tax implications from the US and prices will dive bomb and quality will improve.
http://mjperry.blogspot.com/2008/07/cancer-survival-rates.ht...
US healthcare is not a pure market based system, though. The regulations make it very expensive.
- an expat Dane
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.
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]."
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.