Arnold Kling  

More on Krugman and Wells

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Credible Incentives for Your T... Friedman Extends Hotelling...

I write,


They argue that eventually we will need government rationing of health care. But they say that this issue can be deferred, because in the short run the shift to a government-run health care finance system would save enough money to allow us to continue to afford premium medicine.

Krugman and Wells believe that the efficiency of socialized medicine is a sure thing, and that health care rationing is a far-off possibility. In fact, if the United States were to adopt government-financed health care, the results would be the reverse. Efficiency would fail to improve, and instead it would most likely deteriorate. Rationing would be a sure thing.


I don't think that there is a sensible economist out there who would bet more than a nickel of his own money on his or her estimate of what single-payer health care would do to efficiency (meaning the ability to deliver the same health care procedures at lower cost). The evidence that we have is very mixed. Yet Krugman writes as if large gains in efficiency are a moral certainty.


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COMMENTS (26 to date)
Randy writes:

Its the central planning mindset. How could a program run by the best and brightest possibly be less efficient than one run by some invisible hand? But what if the best and brightest only pay lip service to caring? What if after a while it becomes just a 9 to 5 job?

Half Sigma writes:

Our current healthcare system is a maze of socialist regulation and governmetn financing. It's within the realm of possibility that there could be a better socialized healthcare system than the one we currently have.

However, I'm in favor of fixing healthcare by bringing back market incentives.

John F. Opie writes:

Hi -

The costs of health care have less to do with the actual running costs of the hospital and investment costs and much more to do with wasteful management and above all the dangers of lawsuits aimed less at correcting wrongs and more at enriching lawyers.

Tort reform would probably bring the greatest reduction in health care costs as insurance premiums drop to more rational levels.

And I must agree with the first comment: thinking that the "best and brightest" will think up a real-world solution is just proof that man isn't living in the real world. Administration is part of the problem, not part of the solution.

John

Lord writes:

In a healthcare system that is half government funded, the only market solutions that have a chance of working are ones that allow individuals to ration themselves. This would require both more and less, intervention as discriminatory pricing and cost shifting are prevalent, and healthcare cannot be divided into basic and extraordinary care, so everyone must pay for unlimited coverage.

Lord writes:

It could, of course, be more efficient simply by adopting the plans of a number of countries, Switzerland, Canada, etc., but this would require a competent government to implement and administer it, something sadly lacking here and now.

Dezakin writes:

Try just letting immigrant doctors practice as well. Health care costs aren't high for a single reason, but many competing bad ideas.

You could easily have a socialized health care plan that costs less and delivers similar service by fixing some very very bad policies we currently have.

Randy writes:

Dezakin,

Just a thought; I don't think it is true that health care costs are high. That is, I think the consumer of health care is getting a bargain - because the truly fair price of anything is what it would cost you to make it yourself.

The problem isn't that health care is expensive. The problem is that not everyone can afford the best health care, and that we live in a society that seems to think that the very best health care should be available to everyone at no cost whatsoever.

As the situation is now, the key to actually providing better healthcare for lower income people is to give up on socialized medicine. We can afford a welfare system, and it doesn't require trashing the current system. It only requires a more focused vision.

Barkley Rosser writes:

Can we keep "single payer" distinguished from "socialized medicine," which implies government hiring the medical personnel and which has been associated with much worse management of medical systems around the world?

Also, anybody who thinks that we do not have rationing in our medical care system is sadly mistaken. Those without insurance do without all kinds of care that they should probably have as the emergency rooms they must ultimately rely on will not just do any old thing for them.

For those on this list who want a truly and fully free market system, well, price will ration and determine that the poor will get sick more and die more than the rich.

Thomas T writes:

The biggest reason US healthcare costs more than similar systems is that you Americans pay full price for prescription drugs. Most other countries put a price cap on prescription drugs (leaving the US to foot the bill for development costs).
As a Canadian, I fear the US adopting our system because it will result in fewer new drugs, fewer medical advances.
I can't even explain how frustrated I'll be if the US adopts the Canadian system, starts paying less for drugs and people claim the savings are due to 'efficiency'.

Randy writes:

Barkley,

Re; "...price will ration and determine that the poor will get sick more and die more than the rich."

Yes, that's true. It has always been true and it always will be true. People with greater wealth will choose to spend some of it on the latest advances in healthcare. If we want to provide free basic healthcare for the poor, then we should do it as a welfare program and leave the current demand based system alone.

William Woodruff writes:

What I continously find amazing about the American health care debate is how much those who enjoy employer funded health care deride those who prefer more government participation. Let us try a thought experiment: For merely two years, all of us without health care (40 million and climbing) will enjoy the benefits of employer provided health care, and those who currenly enjoy employer provided care will go without, for two years.

After this two year experiment, I will submit a survey to those whom have now lived without health care for two years. One of the questions will be: Would you prefer a baseline, basic health care program funded by the US Government ?

How about this radical idea: Instead of spending $ 1000 for every man woman and child for a preventative war in Iraq, let us issue a voucher, in the amount of $ 1000 to be used EXCLUSIVELY for health care.

Radical, indeed.

Even better, let us ask any country in the OECD if they would switch their national health care program with what is offered in the United States.
Do you honestly believe their would be any takers ?

-William

John Dewey writes:

William Woodruff,

Are you implying that the 40 million without health care cannot afford health care? I'm sure that a few cannot. But many simply choose not to purchase it. For some it is a question of priorities. Many others realize that public hospitals and clinics will not turn them away, so why pay for health care they can get for free?

Many in the U.S. lack health insurance and adequate disposable income for exactly the same reason: they cannot defer consumption. They will not make the sacrifice necessary to acquire education. They will not pay for a good or service that does not benefit immediately. They are not bothered that today's credit card purchase will require high interest expense in the future.

What right do these irresponsible consumers have to health care paid for with my dollar?

William Woodruff writes:

John et al,

Yes, I am implying that the 40 million without health care cannot afford it. Have you seen the recent figures for wages and inflation, lately ?

John Maynard Keynes used the term 'animal spirits' to describe the often irrational choices of consumers. But, Friedman states (and I agree) that health care and education are indespensible public goods.

You stated -Many in the U.S. lack health insurance and adequate disposable income for exactly the same reason: they cannot defer consumption. - I invite you to price an independent health care plan, and compare the annual premiums and co-pays to the medium income to the 40 mil un-insured.

I presume (as I previously stated) those with health care could care less about those without.
However much one might deny it, we ALL pay the cost of the un-insured.

William

JohnDewey writes:

Actually, William, I know exactly how much one individual health care plan costs. I own a small bookstore in another city, and I reimburse the health care insurance premium of the store manager.

I still contend that most of the 40 million uninsured could pay for their own plans if they wanted to adjust priorities. Socialized medical care just transfers the cost to me.

I'm not sure that the uninsured don't already enjoy free health care. Free clinics and charity hospitals are not as attractive or convenient as what I pay for. But I haven't seen anyone dying in the streets.

JKB writes:

I can't believe Krugman cites the VA as an example of efficiency. It is great that they've turned their health care around but for decades, VA care was more dangerous than being in battle. Where was Krugman in the 1980s? Perhaps he missed the movie "Article 99", which was about veterans having to take over a VA hospital so the heroic doctors could perform operations denied because they didn't meet the bureaucratic criteria.

The key to socialized medicine is to outlaw effective private providers so that death by bureaucracy isn't identifiable.

JohnDewey writes:

"The key to socialized medicine is to outlaw effective private providers so that death by bureaucracy isn't identifiable."

I love that sentence! I don't have your name, so I cannot give proper credit when I use it in letters.

William Woodruff writes:

John et JKB,

Beyond catchy sound bites, I suggest we all read the recent works on health care economists on the US health delivery system.

For example, we know the NIH funds 40% of all research for new drugs. Straight from the tax payer. Obviously, Pfizer et al have no problem feeding at the public trough for research resources. Then, they have no problem providing the pharma they develop (with PUBLIC resources !) to Americans at prices in excess to what they sell to the French, British, Japanese, Swiss, Italians, Germans, Austrians, Russians, Brazilians, Canadians, etc.

And IF there was a true dis-equalibrium between the quality of health care in the US and other members of OECD, we would see their citizenry flooding to the US in DROVES to submit to care here.

-William

JohnDewey writes:

It's would be difficult for the average European to take advantage of American health care. The difference in quality must be large enough to offset not just the cost required for transit but also the cost of the healthcare itself.

I've read that many Canadians become dissatisified with the queues at home and do cross the border. I've not seen evidence that American patients cross over to Canada for health care, only for drugs.

I've also read that Canada has lost thousands of physicians to the U.S. due to inadequate compensation in their home country. If American physicians are moving to Canada, it must be in very small numbers.

William Woodruff writes:

-----It's would be difficult for the average European to take advantage of American health care. The difference in quality must be large enough to offset not just the cost required for transit but also the cost of the healthcare itself.----

Exactly my point. This medical migration does not occur from OECD countries into the US in substantial numbers.

YET, increasingly, Americans are flying to India, Mexico, etc for health care.

Why ??

-William

JohnDewey writes:

Mr. Woodruff,

Here's a link explaining why U.S. patients go to Mexico:

http://tinyurl.com/hjspv

High U.S. costs for labor, malpractice insurance, and overhead induced California HMO's to require that members cross the border for healthcare. It's not the form of insurance that matters. A single-payer system would not reduce U.S. labor costs to Mexico's levels. Such a system would not reduce the number of U.S. lawyers prowling hospitals in search of a "victim". It's not the overhead of the California HMO that's too high, but rather the overhead of California hospitals, much of which is government-mandated. That would not change with a single-payer system. I believe that increased governmet intervention would lead to high overhead.

Sorry, but I haven't seen any evidence that changing to a single payer system would reduce my health care costs or improve the service I receive.

I don't really care if the U.S. develops some single payer system for the 40 million uninsured, though I think we already have that. But don't screw around with my health care. I remain convinced that the quality of U.S. hospitals and the quality of U.S. physicians are the best in the world.

William Woodruff writes:

I am still awaiting catagorical evidence which supports your contention that all other members of the OECD have an inadequate national health care policy, and we, the United States of America have done it correctly.

1. Obviously the NIH (a federal agency) funding a majority of new pharma is positive for Americans. FOREIGN governments then purchase these new drugs at drastically lower prices than Americans pay. These new drugs are funded by US taxpayers.
-Please address this issue-

2. "Lawyers prowling hospitals" is exactly the laissez faire capitalism we all espouse. Caps placed on lawsuits in Texas have not (no suprise) lowered the cost of health care in the state.

3. Certainly not left leaning by any measure, the Economists states (26 Jan 06) about the US Health delivery system:

The world's biggest and most expensive health-care system is beginning to fall apart. Can George Bush mend it?

I quote from the article:

"...Today's debate is scarred by those failures, though some brave health experts still favour comprehensive reform. The Physicians Working Group, for instance, argues that America has to move to a single-payer system, as in Canada or Britain. Victor Fuchs and Ezekiel Emanuel, two prominent health experts, argued in the New England Journal of Medicine last year that the current mess should be replaced with a universal system of health vouchers funded by a hypothecated VAT. "

Do you honestly believe, through any qualitative measure, the US health delivery system is the best in the world ? Better than the Japanese or Swedish system ??

-William

JohnDewey writes:

Wiliwm Woodruff: "I am still awaiting catagorical evidence which supports your contention that all other members of the OECD have an inadequate national health care policy, and we, the United States of America have done it correctly."

I assume that was addressed to me, as I am the only person responding to your comments. William, I don't remember writing anything about the adequacy of OECD national health care policies.

William Woodruff writes: "Do you honestly believe, through any qualitative measure, the US health delivery system is the best in the world ? Better than the Japanese or Swedish system ??"

I don't know anything about the Japanese or Swedish health care delivery systems. What I wrote was that I believe the QUALITY of U.S. hospitals and the QUALITY of U.S. physicians are the best in the world. I believe that because of the faith I have in our capitalism, which continues to attract many of the world's skilled physicians and many of the world's conscientious nurses.

The nations you list may have equally fine hospitals and physicians. But they probably do not face our challenges. Those would include:

1. a border shared with a third world nation that allows millions of less healthy, low-income, uninsured families to enter at will;

2. a huge lower class robbed of their independence through the narcotic attraction of a four-decade-long entitlement culture;

3. foolish juries who award outrageous sums in malpractice suits;

4. government regulations such as California's workmen's compensation laws that drive costs sky-high;

5. the world's highest per capita automobile usage, which certainly leads to death and injury on the roads;

6. the highest murder and violent crime rates, at least among developed nations;

7. nutritional habits that almost guarantee a third of our population will face diabetes or heart disease before they reach the age of 75.

An operating room nurse I know very well regularly describes to me the difficulties surgeons face daily with obese patients. Other physicians have explained the many diseases and medical conditions caused by obesity. I've seen statistics showing that the U.S. obesity rate, highest in the world, is four to five times that of Japan. I haven't seen a number for Sweden, just a reference to it being a low obesity nation.

I don't see how one could compare the health of the Japanese or the Swedes with that of the U.S. and attribute differences to the form of the health care delivery system. That's not what you're suggesting, is it?

Andrew writes:

William, you make some interesting points but most of what you have posted is completely incorrect.

1. Obviously the NIH (a federal agency) funding a majority of new pharma is positive for Americans. FOREIGN governments then purchase these new drugs at drastically lower prices than Americans pay. These new drugs are funded by US taxpayers. -Please address this issue-

The NIH does not fund a majority of pharma development, investors do. A good deal of the NIH dollars go to American Universities that turn around and sell any discoveries to the highest bidder every chance they get. The pharma companies must pay top dollar to acquire the rights to these patented discoveries. These dollars come for income off of existing drugs and from stock holders (since very few pharmaceutical companies use any meaningful amount of debt financing) Are some drugs or chemical compounds developed with the help of NIH funding? You bet, but to say that the NIH pays for the majority of drug development is wrong. To say that the NIH is simply handing out gobs of cash to pharmaceutical companies is even more wrong. Also, the pharmaceutical development business is inherently risky, most chemical compounds turn out to be duds after millions have been spent testing them. The reason that European single payor systems pay less is that they are willing to not cover a drug at all if they don't get the price they want. There are numerous examples of drugs available and approved both here and in the various EU countries but not marketed in various European nations because they don't think the cost is worth the benefit. This is completely rational on the part of these payors, as they should evaluate the cost effectiveness of a treatment before paying for it. The problem comes in when a treatment has a lower cost effectiveness overall and is not covered, but for certain patients, it is very effective and therefore very cost effective. In Europe you are out of luck because there is one payor who has already decided the drug isn't covered. In the US if my insurance company doesn't cover something, I can switch insurers to someone that does cover it.

2. "Lawyers prowling hospitals" is exactly the laissez faire capitalism we all espouse. Caps placed on lawsuits in Texas have not (no suprise) lowered the cost of health care in the state.

Agreed on the cost portion of this point. Lawyers probably aren't driving up costs that much for patients. They are however, raising the cost of doing business for providers and making certain providers reconsider where they will practice and what services they will offer. So it probably has more of an effect on improving access to care and lowering the cost of business for providers than the cost to patients.

"...Today's debate is scarred by those failures, though some brave health experts still favour comprehensive reform. The Physicians Working Group, for instance, argues that America has to move to a single-payer system, as in Canada or Britain. Victor Fuchs and Ezekiel Emanuel, two prominent health experts, argued in the New England Journal of Medicine last year that the current mess should be replaced with a universal system of health vouchers funded by a hypothecated VAT. "

Do you honestly believe, through any qualitative measure, the US health delivery system is the best in the world ? Better than the Japanese or Swedish system ??

The problem with comparisons right now is that they do not provide for an apples to apples comparison. The US has a far more heterogenuous population that most nations in Europe or Asia. This is especially true when compared to Japan. How many low income, poorly educated hispanic immigrants live in Sweden or Japan? How about our living habits? What does the average American diet and exercise regime look like compared to a Sweede or Japanese? How do these comparisons you site account for these variables? The real comparison should be the health care outcomes for Sweedes in Sweeden vs. the outcomes for Sweedes who live in the U.S. As it stands right now, the unadjusted data is skewed and meaningless.

Another factor not considered is how much more we spend here on the last 6 months of life compared to countries with socialized medicine. In the US, with few exceptions, we spare no expense in trying to preserve and lengthen the lives of the elderly, especially the extreme elderly. This does not occur in many nations with socialized medicine, probably because of the cost/benefit analysis. Do you really want a system that tells your elderly mother or father "too bad" instead of treating them? In many cases in the US, we spend more money on the last 6 months of someone's life than we do for all of the rest of their life put together.

Further, socialized medicine is a relatively new phenomenon. I am willing to bet that, assuming the US system remains mostly unchanged, 50 years from now the US system will show significantly better outcomes than those of socialized systems. As it stands right now, the socialized systems really haven't been around for one entire generation's life span. As such, the data is overlapping two generations, skewing the results when comparing with the US.

The fact that you named four physicians in favor of a single payor system means nothing. I can probably without much trouble find 400 people in favor of anything in a country of 300 million. The idea that a single payor system will save money is nonsense. Assuming for a minute that there was a system like Medicare or Medicaid for everyone, two things would immediately happen:
1) Physician salaries would be cut drastically to be more in line with the other socialized systems. This would have the effect of encouraging very bright people who would otherwise be doctors to choose other careers with higher earning potentials.
2) Hundreds of hospitals would go bankrupt and the Medicare/Medicaid systems would need to drastically increase reimbursement. As it stands right now, most hospitals lose money on most Medicare DRGs and ALL Medicaid DRGs. It is the private insurance plans that pay the bills at most hospitals and allow them to keep their lights on. If reimbursement was standardized to the Medicare rates, most hospitals would immeditely turn cashflow negative and would only continue to operate so long as they had an endowment of cash reserves. This scenario would limit access to care, increase wait times, and ultimately increase costs drastically across the system.

The only ways socialized medicine systems have of reducing costs are:

1) Reducing reimbursement which would be devestating to providers.

2) Rationing

Since #1 would cause a number of providers to cease operating, #2 is the only option under the socialize system. Therefore, it follows that anyone in favor of a single payor system is really advocating Government Rationing of Healthcare.

William Woodruff writes:

--which continues to attract many of the world's skilled physicians and many of the world's conscientious nurses. ---

Really ? When was the last time you were treated by a physician schooled and trained in:

Sweden
Japan
Austria
Belgium
Switzerland
Luxembourg
England
Canada
Norway
France
Germany
Hungary
Iceland
New Zealand
Australia
Korea
Czech Republic
Denmark


---The reason that European single payor systems pay less is that they are willing to not cover a drug at all if they don't get the price they want.---

Which means they are SMARTER than we are.

--2) Rationing--

This is THE straw man issue of the comparison of our health care system, and the health delivery system practiced by other countries of the OECD. I hear this often from those against socialised medicine. AS IF, we do not ration care here ??? Even the most generous privately insured American care provider rations care, and I am sick to the back tooth of reading how we in the US despise socialized health care because it is rationed. Wake up, EVERYTHING is rationed, in the universe. Everything !!

-William

Andrew writes:
Really ? When was the last time you were treated by a physician schooled and trained in:

Sweden
Japan
Austria
Belgium
Switzerland
Luxembourg
England
Canada
Norway
France
Germany
Hungary
Iceland
New Zealand
Australia
Korea
Czech Republic
Denmark

The PCP I use was schooled and trained in the UK. So, to answer your question, about 6 months ago. Thanks for proving the point.

Which means they are SMARTER than we are.

Tell that to the person who would have benefited from the drug.

--2) Rationing--

This is THE straw man issue of the comparison of our health care system, and the health delivery system practiced by other countries of the OECD. I hear this often from those against socialised medicine. AS IF, we do not ration care here ??? Even the most generous privately insured American care provider rations care, and I am sick to the back tooth of reading how we in the US despise socialized health care because it is rationed. Wake up, EVERYTHING is rationed, in the universe. Everything !!

You are right, everything is rationed by cost. I.E. supply and demand. Except that people like you, William, want to throw supply and demand out the window and replace it with a system controlled by unaccountable government employees. There are plenty of stories about waiting and rationing in countries with socialized medicine, but there is very little or no waiting for an appointment here. Here is what socialized medicine controlled by government employees results in:

http://www.cbc.ca/montreal/story/qc-surgery20060224.html

JohnDewey writes:

Here's a July, 2005, quote from Jack Aubrey of "The Ottawa Citizen":

"The exodus of Canadian doctors to the United States, estimated at between 200 to 250 physicians per year, has slowed in recent years. However, a large proportion of those emigrating graduated within the past 15 years, and most are specialists."

Mr. Woodruff, I've only been treated by two physicians in the past year. One was a first generation Korean immigrant. I honestly do not know whether he was educated in Korea or in the U.S. My wife has worked in the operating room for 25 years and in neonatology before that. I know she's worked with many physicians who were Asian and not U.S. citizens. I'll ask her about European physicians this evening and get back to you. Or maybe not.

We obviously have a difference of opinion, but I wouldn't want that to make you "sick to the back tooth". So perhaps the best thing is to just drop the discussion.

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