Paul Krugman: Why markets can’t cure healthcare

http://krugman.blogs.nytimes.com/2009/07/25/why-markets-cant-cure-healthcare/

by mellis • 17 years ago

16 39 17 years ago

krugman.blogs.nytimes.com

known• 17 years ago

http://en.wikipedia.org/wiki/Flexicurity FTW.

laut• 17 years ago

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...

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

- an expat Dane

jstevens85• 17 years ago

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.

greendestiny• 17 years ago

Maybe. Kind of tricky to compare when you have different demographics in so many ways - different aged populations would be a huge factor. A lot of government healthcare at the top of that graph if you forget about focusing on Denmark.

ThomPete3• 17 years ago

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.

mellis2• 17 years ago

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.

cwan6• 17 years ago

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?

Retric3• 17 years ago

I actually support the opposite model. Public heath care funding for generic drugs / cheep new drugs and basic heath care. Private insurance for extremely expensive drugs, experimental or high risk treatments, and life support once you are brain dead.

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.

ThomPete3• 17 years ago

"Private insurance for extremely expensive drugs, experimental or high risk treatments, and life support once you are brain dead."

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.

trapper• 17 years ago

You are kind of missing the point. A public system is fine (I live in one), but I'm not using public if I can afford to go private. It's the best of both systems: if you can't afford private treatment, you are guaranteed some treatment. If you can, you pay through the nose for it, or pay for medical insurance anyway.

Nothing will change for those who are well off, but for those at the bottom it will be great.

cwan6• 17 years ago

"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• 17 years ago

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.

cwan6• 17 years ago

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).

cwan6• 17 years ago

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

mhb• 17 years ago

How to Cure Health Care by Milton Friedman: http://www.hoover.org/publications/digest/3459466.html

unignorant• 17 years ago

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.

ThomPete3• 17 years ago

Which to my mind seem misguided to.

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.

tome2• 17 years ago

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

DanielBMarkham5• 17 years ago

Define "work better" please

njl• 17 years ago

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.

davetufts• 17 years ago

The US system is not private. There are so many regulations, tax codes, and state mandates that you can't possibly consider the current situation a free market solution.

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.

DanielBMarkham5• 17 years ago

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• 17 years ago

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]."

DanielBMarkham5• 17 years ago

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.

Paul Krugman: Why markets can’t cure healthcare

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