August 31, 2004

Strong Medicine--Stronger Than I Expected

You wouldn't know it from the hacks (the Luskins, the Sullivans, the Kauses) who have been laying down their slime trails ever since it turned out that Paul Krugman was an effective New York Times columnist, but Paul Krugman loves the market more than any other economist I know--in a "tough love" sense. That is, he's not one of those on the right who thinks that market failures don't exist, pretends that every market everywhere functions perfectly, and doesn't care much about how markets really work. He's not one of those on the left who thinks that market failures are unfixable, and that command-and-control is nearly always and everywhere a better alternative. He's one who believes that market failures are dangerous things that can be neutralized: smart reorganizations of property rights, or small steps that put the government's thumb on the scale to improve incentives, or tweaks to the legal structure that rule certain kinds of contracts out and other kinds of contracts in will, he thinks, almost always turn the market into an effective and efficient social planning and organization mechanisms that everyone can love. His is a "tough love" approach to markets--and it is a sign that he cares and that he has great faith in Adam Smith.

With that as background, I find it interesting that Paul Krugman is in the process of giving up his faith in the properly-structured market, as far as American health care is concerned:

The New York Times > Opinion > Op-Ed Columnist: America's Failing Health: By PAUL KRUGMAN Published: August 27, 2004.

In most advanced countries, the government provides everyone with health insurance. In America, however, the government offers insurance only if you're elderly (Medicare) or poor (Medicaid). Otherwise, you're expected to get private health insurance, usually through your job. But insurance premiums are exploding, and the system of employment-linked insurance is falling apart... dropped... health plans... finding ways to avoid paying benefits to new hires... refusing to hire more workers....

The 2004 Economic Report of the President told us what George Bush's economists think.... [H]ealth costs are too high because people have too much insurance and purchase too much medical care.... [We need] policies... that induce people to pay more of their medical expenses out of pocket [and thus lower demand for medical services]....

John Kerry's economic advisers... private insurance companies have excessive overhead, mainly because they are trying to avoid covering high-risk patients. What we need... is for the government to assume more of the risk.... [T]he mainly private U.S. health care system spends far more than the mainly public health care systems of other advanced countries, but gets worse results.... (At its best, U.S. health care is the best in the world. But the ranks of Americans who can't afford the best, and may have no insurance at all, are large and growing.)... [P]rivate insurers and H.M.O.'s spend much more on administrative expenses, as opposed to actual medical treatment, than public agencies at home or abroad.

Does this mean that... we should switch to a Canadian-style single-payer system? Well, yes.... Two years ago the Conference Board of Canada - a who's who of the nation's corporate elite - issued a report urging fellow Canadians to bear in mind not just the "symbolic value" of universal health care, but its "economic contribution to the competitiveness of Canadian businesses." My health-economist friends say that it's unrealistic to call for a single-payer system here: the interest groups are too powerful, and the antigovernment propaganda of the right has become too well established in public opinion. All that we can hope for right now is a modest step in the right direction, like the one Mr. Kerry is proposing. I bow to their political wisdom. But let's not ignore the growing evidence [of] our dysfunctional medical system....

I won't pretend that I'm qualified to say what should be done with America's health care system. All I can do is observe that the Kerry people are smart, knowledgeable, well-intentioned, and serious; and that by contrast the Bush people act as if their priority number one is to boost the stock market values of drug companies. So from my standpoint it's very interesting to note that the weight of the evidence has become strong enough to push Krugman toward the single-payer position.

Posted by DeLong at August 31, 2004 08:35 AM | TrackBack
Comments

Last time I checked, the little white ladies in tennis shoes still feel swell with the current system.

They keep repeating tales about how long you have to wait for treatment in Canada and how foreigners flock to the Cleveland Clinic for treatment.

No, the fact that they are on Medicare doesn't bother them a bit. (It's really quite rude to put that sort of issue to them, you know. Social Darwinism is for imigrants and people like that.)

Until they start feeling uncomfortable with the status quo, it will remain.


Posted by: cancer survivor at August 31, 2004 08:54 AM

There is no other solution than the single-payer one.

Beyond that, the notion that health care costs are too high because consumers buy too much of it is insulting. My Blue Cross doubled in three years and I dropped it. I'm 59 and gambling with fate. Just for fun (?), I checked the other day with an insurance agent. He told me BC/BS is set up to double every 2.5 to 3 years. How can this be??

The worst thing about it from my view is that healthy people ought to be able to pay less and don't. I never get sick, never take pills, never go to the doctor, but I'd have to pay as much as the parent who whisks Susie to the doctor with every sniffle. This is absurd.

There simply is no justice in health care in America today, and the costs will soon kill more people than disease.

Posted by: John H. Farr at August 31, 2004 09:11 AM

The vast majority of voters have health insurance (85 percent of the population is insured, but 92 percent of those who participated in the 2000 election were covered), political leaders have little incentive to overcome that impasse.

"Most Americans think that the wealthiest nation in the world should wipe this problem out," says Robert J. Blendon, an expert on polling and public attitudes on health care at the Harvard University School of Public Health. "But there's no single plan for universal coverage that more than one-quarter of the nation thinks is a good idea."


Source: Mike McNamee
BusinessWeek online


http://www.msnbc.msn.com/id/4798058/

Posted by: bhaim at August 31, 2004 09:13 AM

Are we sure Krugman meant that we should go to a system exactly like Canada's?

Posted by: Brian at August 31, 2004 09:33 AM

Many big companies probably want to go to a single payer system now. It would lower their costs and it is likely in the current economy that the companies would not need to raise everyone's salary a corresponding amount. Not raising peoples salaries after a shift to single payer wouldn't piss people off like a salary cut would.

Posted by: Joe O at August 31, 2004 10:10 AM

Normally I like Paul Krugman a lot. But this column is a little strange.

His characterization of Bush's view is:
"According to the [Economic Report of the President], health costs are too high because people have too much insurance and purchase too much medical care. What we need, then, are policies, like tax-advantaged health savings accounts tied to plans with high deductibles, that induce people to pay more of their medical expenses out of pocket."

Put differently, health costs are high because of moral hazard. It is true that the Economic Report of the President has a section on moral hazard as a contributing factor to high spending in the U.S. But the very first section of the chapter on health care cites technological progress as the driving feature of health care costs. I think nearly all health economists would agree with that assessment. Rising moral hazard has had a very small effect on overall spending (because insurance coverage and generosity has tended to increase).

Bush's first proposal in the Economic Report is to allow small businesses to buy health insurance through large associations, thereby giving them access to lower priced insurance for larger groups.

His characterization of Kerry's view is:
"[Kerry's advisors] believe that health costs are too high because private insurance companies have excessive overhead, mainly because they are trying to avoid covering high-risk patients. What we need, according to this view, is for the government to assume more of the risk, for example by picking up catastrophic health costs, thereby reducing the incentive for socially wasteful spending, and making employment-based insurance easier to get.

It is true that a relatively small fraction of people who have very high-costs account for a very large bulk of medical spending. This is partly why insurance is expensive. Kerry has basically proposed a system where private insurance covers costs up to a certain point; beyond that the government pays. I'm not sure what this has to do with insurance company overhead -- that is, I don't think overhead is caused by trying to avoid high-cost patients.

Strangely, his characterization of Kerry's position is that there is too much moral hazard ("...reducing the incentive for socially wasteful spending..."), which is pretty similar to his characterization of Bush's position ("...people have too much insurance and purchase too much medical care...").

Krugman then concludes: "A smart economist can come up with theoretical justifications for either argument. The evidence suggests, however, that the Kerry position is much closer to the truth"

I'm not sure what to make of this. He left out the main reason why health costs have risen -- technological progress.

He then writes: "Does this mean that the American way is wrong, and that we should switch to a Canadian-style single-payer system? Well, yes. Put it this way: in Canada, respectable business executives are ardent defenders of 'socialized medicine.' Two years ago the Conference Board of Canada - a who's who of the nation's corporate elite - issued a report urging fellow Canadians to bear in mind not just the 'symbolic value' of universal health care, but its 'economic contribution to the competitiveness of Canadian businesses.' "

What's strange about this is that Krugman knows better than to think that high health care costs affect American "competitiveness". Health care costs are paid for by workers in the form of lower wages. Increases in health care costs tend to reduce wages, not profits, and they don't lead to rising output prices. The main reason for this is two-fold: rising health care costs are largely due to higher quality care and more expensive care. This raises the value of health insurance and hence raises the value of compensation packages (among those who receive employer-provided health insurance). Thus, workers require less cash compensation to keep them in the market.

Even if rising health care costs added no value to health insurance, most health insurance costs would still be passed along to workers. Just as we think inelastic labor supply implies that the burden of the payroll tax falls on workers, the burden of a rise in health insurance costs falls on workers.

The problem with rising health care costs that do not add value is that it forces us to reduce spending on other goods and services.

In his new bookDavid Cutler makes a good point about Canadian-style national insurance: Expanding coverage is not a difficult problem -- it just takes money. Reducing the rate of growth of medical spending while at the same time trying to avoid reducing growth in medical quality -- now that's a tough problem. Instituting a national health insurance program is a drastic step -- it would mean eradicating a very large industry -- and it wouldn't solve our fundamental problem.

Posted by: DL at August 31, 2004 10:14 AM

bhaim,

You're right, folks who have great insurance employer provided coverage don't want to give it up to go to a single payer system. Jacob Hacker has a proposed a "pay or play" plan that gets around that. An employer can provide health insurance or it can pay a payroll tax (in the neighborhood of 5%). The payroll tax would pay for a single payer system. Eventually, most employers would drop their coverage and just pay the 5%, but its an easier way to get the nose in the tent than just dropping all coverage one fine day and moving everyone to a single payer system.

Incidentally, the federal government currently has two single-payer systems-- Medicare for seniors (which doesn't pay for drugs) and Tricare for retired military (which does pay for drugs).

Posted by: beowulf at August 31, 2004 10:18 AM

Krugman:
"The fact is that the mainly private U.S. health care system spends far more than the mainly public health care systems of other advanced countries, but gets worse results. In 2001, we spent $4,887 on health care per capita, compared with $2,792 in Canada and $2,561 in France. Yet the U.S. does worse than either country by any measure of health care success you care to name - life expectancy, infant mortality, whatever."

Fraser Institute:

"A July 2004 study by the Vancouver-based Fraser Institute, Paying, More, Getting Less, concluded that after years of government control, the Canadian medical system is badly injured and bleeding citizens' hard-earned tax dollars. The institute compared health care systems in the industrialized countries in the Organization for Economic Cooperation and Development (OECD) and found Canada currently spends the most, yet ranks among the lowest on such indicators as access to physicians, quality of medical equipment, and key health outcomes."


http://www.heartland.org/Article.cfm?artId=15524

http://www.fraserinstitute.ca/shared/readmore.asp?sNav=pb&id=683

Posted by: PM at August 31, 2004 10:27 AM

Americans feelings about healthcare:
Canada 49%
US 34%
Britain28%

http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=109&STORY=/www/story/08-30-2004/0002240806&EDATE=

I also read the country rankings and the US does not fair as well in quality as one would expect.

Posted by: me at August 31, 2004 10:47 AM

PM, be careful with Fraser Institute stats. They are often not confirmable by other sources and seem to be skewed towards a specific policy agenda. Especially where healthcare is concerned.

The reality is that the Canadian health care system, despite its flaws, is able to provide full coverage for everyone. Per-capita government expenditures are about the same in both countries. And Canadians live longer.

Posted by: Kevin Brennan at August 31, 2004 11:01 AM

DL,

I think I made the same point last night. Kerry seems to recognize that more money is needed to cover more people.

Posted by: Brian at August 31, 2004 11:18 AM

John Farr said:

"The worst thing about it from my view is that healthy people ought to be able to pay less and don't. I never get sick, never take pills, never go to the doctor, but I'd have to pay as much as the parent who whisks Susie to the doctor with every sniffle. This is absurd."

That's what insurance is ABOUT, John. It's about spreading risk. It's about everyone paying together so that the worst-off can be helped.

If you don't want to pay for someone else's care when you're healthy, then you shouldn't expect anyone else to pay for your care when you're sick. You're right to have dropped the health insurance; your personal philosophy disqualifies you from receiving its benefits.

Posted by: Fred at August 31, 2004 11:38 AM

Kevin,

I understand that the Fraser Institute has a free-market perspective but here are some links to other sources:

"At its annual meeting in Toronto on Tuesday, the Canadian Medical Association said health-reform experts have identified shortfalls among all types of physicians, nurses and technicians as a major obstacle to reducing long waiting lists for procedures that include joint replacement, heart bypass and cancer care.

A report by the association analyzing the shortfall shows Canada has 2.1 physicians per 1,000 residents, ranking it 25th out of 30 countries in the Organization for Economic Co-operation and Development, a forum that assesses economic and social policy."

http://www.msnbc.msn.com/id/5747830/
----------------------

"Cleanliness practices have been dangerously eroded and hospitals are overcrowded. "We have a big problem in terms of infection control," Dr. Karl Weiss, an infectious disease specialist at Montreal's Maisonneuve-Rosemont Hospital, told the medical association journal. "We are practising 21st-century medicine in a 19th-century environment."

by Michael Hurley, the president of the Ontario Council of Hospital Unions

http://www.thestar.com/NASApp/cs/ContentServer?pagename=thestar/Layout/Article_Type1&c=Article&cid=1091787823624&call_pageid=968256290204&col=968350116795
----------------------------

"Canada's health-care system is "five to 10 years" from the breaking point -- even with cash injections from government, says the new president of the B.C. Medical Association."

-Vancouver Sun

http://www.angelfire.com/pa/sergeman/issues/healthcare/looms.html
-----------

Actually take a look at this guy's site. Lots of resources if you want to look at the other side of the issue:

http://www.angelfire.com/pa/sergeman/issues/healthcare/socialized.html#top

Posted by: PM at August 31, 2004 11:51 AM

The Heartland and Fraser Institutes are right wing echo chambers masquerading as scientific study.

They are both Scaife funded, and the Heartland Institute, for example claims that there are no health problems from passive cigarette smoke.

Funding for the Heartland institute:

Charles G. Koch Charitable Foundation
Claude R. Lambe Charitable Foundation
JM Foundation
John M. Olin Foundation, Inc.
Lynde and Harry Bradley Foundation
Scaife Foundations (Sarah Mellon Scaife, Carthage)

Standard right wing suspects.

I'm beginning to think that 501(c)3 in the US needs to be overhauled.

Posted by: Matthew Saroff at August 31, 2004 12:00 PM

Matthew,

"right wing echo chambers masquerading as scientific study"

"They are both Scaife funded"

"claims that there are no health problems from passive cigarette smoke"

So for these reasons I should disregard all the facts they bring up?


"An Ad Hominem is a general category of fallacies in which a claim or argument is rejected on the basis of some irrelevant fact about the author of or the person presenting the claim or argument. Typically, this fallacy involves two steps. First, an attack against the character of person making the claim, her circumstances, or her actions is made (or the character, circumstances, or actions of the person reporting the claim). Second, this attack is taken to be evidence against the claim or argument the person in question is making (or presenting)."


http://www.nizkor.org/features/fallacies/ad-hominem.html


Posted by: PM at August 31, 2004 12:12 PM

PM:

Logically speaking, you are right. Practically speaking, you are wrong.

There was an interesting thread on this over at Crooked Timber; I commend it to your attention (but am too lazy to look up the link). The point was this: on subjects as complex as health care, it's easy to lie by omission. If you are not expert in, or at least knowledgeable about, the area under discussion, you are unlikely to spot the errors. (The CT thread puts in a caveat about "minimal competence" here.)

So, in practice, people select those they trust to believe or disbelieve. This selection is, unfortunately, often based on ideological resonance. But it is also based on the record of sources in areas you do know something about, or in which you have followed the discussion for some time, long enough to form a real impression of who is reliable.

The Scaife and Co. sources have a bad record of lying. In a world of limited resources, it's rational to simply ignore them, even though in principle they might be right on a given issue. It would be nice if we could operate sub spiece eternitas, but lacking infinite time and patience we can't.

Posted by: Jonathan Goldberg at August 31, 2004 12:42 PM

I am not claiming that those orgs are "bad" because they take Scaife money.

I am claiming that they are bought and paid for, and there is ample evidence that Scaife, Olin, Bradley, etc. require ideological orthodoxy as a requirement for funding.

Posted by: Matthew Saroff at August 31, 2004 01:11 PM

Jonathan,

I'll take a look at the link. If Scaife and Co. have a bad record of lying, and do so on some of the topics I posted on, then not only would I be practically wrong but logically wrong as well. If that is the case I'll change my mind.

However, I did post from a variety of sources and I find it hard to believe that the CMA, OCHU, and various Canadian newspapers are all in cahoots with Heartland and Fraser.

The point I'm trying make is that the Canadian model is not some utopia that will fix all our problems. I do acknowledge market failures (i.e. once you are diagnosed with a chronic or serious health problem it's going to be pretty hard to find someone to insure you) but to make the jump from there to "there is no other solution than the single-payer one" as was stated above blows my mind.

I'm in my late 20's, self-employed, and purchase my own high deductible health insurance from Blue Shield of California for around $48 a month. Why should someone else be forced to pay this bill for me when I can afford it and am happy with the service they provide? My sister moves to Boston though and she can't get covered for under $400 a month due to state mandates and it is illegal for her to keep her old plan in California. Does this make sense to anyone?

Also after spending hours in line at the DMV yesterday my initial reaction was "Thank God I don't have to rely on getting my food from these people." After today's discussion and reading some of the articles above I'm glad I don't have to rely on getting my health care from them either.

Posted by: PM at August 31, 2004 01:26 PM

My wife, a physician, makes an important point about what may be the source of queues in Canada for elective proceedures--they spend a much smaller share of GDP on health care in Canada than we do in the United States.

Therefore, while many attribute the problems of the Canadian system to the system, the problems may be a function of resources. Who knows, a Canadian system with spending equal to the halfway point between what they spend up there and what we spend down here (as a fraction of GDP) might produce something really good!

Posted by: Richard Green at August 31, 2004 01:32 PM

canada actually has similar health outcomes overall, despite significant problems. (none of them pointing to immanent collapse, contra think tank studies)

i don't actually know what krugman means by single-payer in the american context because the US would presumably have an extensive private system over and above the single-payer system, differences in physician salaries, different arrangements for drug costs, etc*. it's hard to argue beyond that without any specific expertise, which I think is a weakness of the basic per capita spending comparison.

* by the way, here's an example bursting the totally public myth about canada:

"the erosion of seniors’ drug benefits in many provinces over the past decade suggests that it has become politically easier to control government drug spending by shifting costs to individuals (and private insurers) than to take steps to reduce drug expenditures overall. The fact that such cost shifting does nothing to reduce the costs of drugs can be read from the reaction of drug companies—resounding silence. By contrast, policy initiatives that reduce drug spending, such as the reference drug program in British Columbia, have suffered repeated attacks from this quarter."

from: http://www.healthaffairs.org/

Posted by: Shai at August 31, 2004 01:41 PM

"I find it hard to believe that [...] various Canadian newspapers are all in cahoots with Heartland and Fraser."

There aren't that many Canadian newspapers... by which I mean that many of them are owned by the same owner (CanWest Global), which interferes quite a bit more than you'd like an owner to interfere. And the three CanWest papers available in Vancouver (out of four dailies total) shill for the Fraser Institute way more than I'd like. (If they were "unbiased", you'd expect them to fact-check FI more often, or possibly just run counterpoints from the lefty think-tanks in equal amounts.)

Posted by: ArC at August 31, 2004 01:54 PM

http://www.nytimes.com/2004/08/15/business/yourmoney/15advi.html?

The Missing Rivalry in Health Care

RISING health care costs are a major concern for virtually every American company. Michael E. Porter, an expert on competitive strategy and the Bishop William Lawrence University professor at Harvard, argues that the heart of the problem is a health care system that needs less competition in some areas and more in others.

Q. Is there a crisis in health care?

A. We certainly think so. Costs are going up at double-digit rates. Yet the general consumer feels that quality is suffering in the sense that there are more restrictions. People are having to pay a bigger piece of their health plan costs. And then all the data on quality and defects and errors are really quite alarming.

Q. You have argued that we have the wrong kinds of competition in health care. What does that mean?

A. The health care system is a great paradox. We in the United States have the most competition of any health care system in the world. That should be a powerful force for improving things. Yet we also have results that aren't the worst results but certainly are not desirable results.

Q. What kind of competition did you find?

A. The relevant place where you want to have competition is diagnosing and treating particular diseases or conditions. We want people to compete to do that better and better.

But as we looked at the United States health care system, we found that there's almost no competition at that level. Instead, we see a lot of competition among provider networks, whether they consist of hospitals or doctors or both, to assemble bargaining power so they can strike a better deal for themselves.

But that kind of cost-shifting or bargaining-power competition doesn't create health care value. In many ways, it destroys value, because it injects massive administrative costs and complexity into the system. So the central point is that the kind of competition that drives value creation isn't really occurring today.

Posted by: anne at August 31, 2004 01:54 PM


A side note on a former Canadian press power:

http://www.nytimes.com/2004/08/31/business/media/31CND-CONR.html

Panel Says Conrad Black Ran a 'Corporate Kleptocracy'
By FLOYD NORRIS

Conrad Black and other controlling shareholders of Hollinger used $400 million for personal perks, a new report says.

Posted by: anne at August 31, 2004 01:59 PM


An interesting ally of Conrad Black and the Hollinger conservative press empire was:

[T]he report saved its harshest criticism for Richard Perle, the former Reagan administration official and current member of a Pentagon advisory board. It said it did not consider Mr. Perle to have been an independent director and called on him to return $5.4 million in pay he received after "putting his own interests above those of Hollinger's shareholders."

Posted by: anne at August 31, 2004 02:03 PM

bhaim's comment is spot on:

"The vast majority of voters have health insurance (85 percent of the population is insured, but 92 percent of those who participated in the 2000 election were covered), political leaders have little incentive to overcome that impasse."

We, all of us, tend to forget that we are expressing value preferences in our policy recommendations. If you view universal and equal coverage as the most significant measure of a health care system's value, you will prefer single payer systems.

For those who are willing to give on universal coverage, 92% of voters being quite happy with their healthcare is tough to argue with. If that many people won't give up their current coverage, some might ask on what basis are we saying the system is broken? After all, if 55% of voters want to raise taxes on 5% of taxpayers, we just say that democracy is functioning.

Posted by: Jason Ligon at August 31, 2004 02:15 PM

Prof. DeLong,
You say you're not qualified to say what should be done about health care in the US. Who is? In other words, who are the health economists who are worth reading? I'm more interested in enlightenment than in partisan argumentation.I'd appreciate answers from other posters as well.

Posted by: JRossi at August 31, 2004 02:43 PM

PM says "I'm in my late 20's, self-employed, and purchase my own high deductible health insurance from Blue Shield of California for around $48 a month."

Well, that's fascinating. I'm in my early 50s, self-employed, and buy my own insurance from Kaiser for $245/month (that's not family; I have none. That's just for me).

HMSA, the local equivalent of BC/BS, doesn't offer plans for self-employed individuals in Hawai'i, or didn't last time I checked a couple of years ago. My rates have gone up from $188/month in 2000 to the current $245/month.

Posted by: Linkmeister at August 31, 2004 03:03 PM

On health care -

Uwe E. Reinhardt - Princeton
Michael E. Porter - Harvard

Note the interview with Michael Porter above. I find EPI.org does fine health care policy analysis. Brookings also offers some interesting analysis.

Posted by: anne at August 31, 2004 03:15 PM

How high is high deductible?

Posted by: anne at August 31, 2004 03:17 PM

I don't believe bhaim's 92%, even from Business Week.

"Value judgements" are involved in the call for single-payer? -- Damn! Why didn't I think of that?

Posted by: zizka / John Emerson at August 31, 2004 03:33 PM

http://www.epinet.org/content.cfm/webfeatures_econindicators_income20040826

The share of the population with health insurance also declined last year, with 45 million persons—15.6% of the population—going without coverage in 2003, compared to 15.2% in 2002. This increase in the uninsured was largely due to less employer-provided coverage, another indication of deteriorating job quality in 2003.

....

It should be noted that these income, poverty, and health insurance results over the past year occurred in the second year of an economic expansion, with the nation's gross domestic product up 3% and productivity growth—a supposed determinant of the living standards of working families—up especially strongly, at 4.5%. As today's report shows, clearly the benefits of this growth have failed to reach middle- and lower-income families.

Posted by: anne at August 31, 2004 03:45 PM

To have 15% of the population with no medical insurance is a grave problem. Since we do not allow people to die in the streets, the cost of treating those with no insurance is paid by those of us who have insurance, but the threat to those with no insurance is clear and with no justification. Medical care must be a right for all our sakes.

Posted by: anne at August 31, 2004 03:50 PM

As a member of the Toronto Association of Business Economists I was present at the meeting where the spokesperson of the Frazer Institute reported on their study indicating that the Canadian health system was inferior by international standards. The interesting aspect of the report was that the Institute left out the US date from the analysis, saying that the USA figure was clearly an outlier, and therefore not relevant. No further explanation was given. This is a clear case of intellectual dishonesty.

Posted by: Thomas T. Schweitzer at August 31, 2004 04:43 PM

The US *is* and outlier, but still they shouldn't have left it out, even if it were a real outlier.

Posted by: jml at August 31, 2004 05:28 PM

Moral hazard. I think one of the differences between private systems in which people see what it costs them directly, and public ones, where the insurance comes out of general revenue or payroll taxes that cover other items, is that people who see what they are paying want to get what they thing is their money's worth. Now, few of us (apart from the cash-flow-deprived) would burn down our house or have ourselves killed just to collect the insurance; but health care is different. It is more like unemployment insurance. You see what you pay in,and instead of treating the expense as an insurance premium for an event you would rather not want to have happen to you, you treat it like a piggy bank. My conjecture is that there is more moral hazard in private systems than in public ones. True, the private insurers raise the rate, but this induces adverse selection. Private insuring of health risks seems to be a lose-lose situation.

Posted by: Knut Wicksell at August 31, 2004 06:13 PM

Jason Ligon wrote, "If you view universal and equal coverage as the most significant measure of a health care system's value, you will prefer single payer systems."

Yes, but there are other reasons to prefer single payer. Like the fact that, in the aggregate, it's cheaper, involves less paperwork for consumers, etc.

The real question is: what possible reasons could there be for prefering a private health insurance system, other than a desire to see health insurance companies make profits?

Posted by: liberal at August 31, 2004 06:27 PM

"For those who are willing to give on universal coverage, 92% of voters being quite happy with their healthcare is tough to argue with. If that many people won't give up their current coverage, some might ask on what basis are we saying the system is broken? After all, if 55% of voters want to raise taxes on 5% of taxpayers, we just say that democracy is functioning."

You sound as if this was a customer satisfaction survey?

Who are the uninsured? Mainly children and indigent adults under 65.

It's the children I worry about. Public health insurance, ( Medicaid), is actually quite restrictive as to eligibility. While pre-natal care and births are paid for (with the infant covered until age one), the income levels for eligibility go up as the child ages, ( Rather peculiar in my view).

I don't care so much about adults but children, who are not responsible for their parent's decisions, are the ones suffering the most from the health care crisis.

If I were a selfish person, I would be concerned. After all, those children are the future citizens of the society. For them to be in ill health, or undeveloped in any fashion threatens my future.

Posted by: evagrius at August 31, 2004 07:34 PM

anne,

What about David Cutler? He's from Harvard. He seems to be a go-to guy for this type of stuff. And as it happens, he's working with/for the Kerry campaign.

Posted by: Brian at August 31, 2004 08:39 PM

The rightwingers love to harp on the "waiting period" meme, and it is pure baloney. The simple fact is that a lot of medical procedures are not urgent, and making sure you can treat them immediately is extremely wasteful, and occasionally corrupt.

I recently worked at a private-pay hospital, and the patient load was actually funny. When the doctors went on vacation the number of patients dropped, when they wanted to work full time the number of patients soared, and each and every patient believed that it was a darn lucky thing they happened to visit the doctor "just in the nick of time".

The simple fact is that almost everyone avoids going to the doctor, at least until they have consulted (in this order) a family member, a friend, and, quite often, their pharmacist. Even if you just look at people WHO ARE ACTUALLY HAVING A HEART ATTACK, a full third of them will put off as long as possible a trip to the doctor.

The "waiting period" is just a meaningless statistic, chosen largely because in the U.S. the very rich don't like to wait for anything- and usually don't have to.

Posted by: serial catowner at September 1, 2004 06:16 AM

"The real question is: what possible reasons could there be for prefering a private health insurance system, other than a desire to see health insurance companies make profits?"

1) Again I ask, What percent of global medical care innovation is attributable to single payer systems? Another way of asking the same question. Regardless of the country of origin of the company or lab, deduct the 'excess profit' in the US market from the picture and see what you have left for R&D. Where will that money come from?

2) Denial of the superiority of competitive market systems to monopolies and central planning in delivering innovation seems a bit silly at this point in history.

3) There is an assumption that while private entities seek to maximize benefits to themselves, public entities are altruists inherent in the preference for a single government provider. Public choice tells us this is unlikely. Private entities have much more limited ability to inflict harm than a government monopoly does.

4) Imagine someone you really don't like running all healthcare in the land. Such a system is very sensitive to top down influence because there is no competition.

5) It is antithetical to basic human liberty to have no other choice than to wait until a government official deems you worthy of getting treatment, regardless of whether you could negotiate an agreement with a willing provider on your own. There are two ways of rationing, through the accumulation of political clout or through the accumulation of wealth acquired by volutary exchange. We intentionally leave property rights intact to prevent the rationing of homes and food by powerful political interests, and I don't see why that argument disappears in the realm of healthcare.

"You sound as if this was a customer satisfaction survey?"

What do you think democracy is? It is a customer satisfaction survey and a popularity contest. What a great way to determine who gets healthcare.

Posted by: Jason Ligon at September 1, 2004 07:00 AM

"What percent of global medical care innovation is attributable to single payer systems? Another way of asking the same question. Regardless of the country of origin of the company or lab, deduct the 'excess profit' in the US market from the picture and see what you have left for R&D. Where will that money come from?"

Mr. Ligit; can you first define "medical care innovation"? Do you mean new drugs developed to replace old drugs because the new ones are more profitable, ( that's the charge a nuber of Big Pharma critics have made)? Do you mean the development of new operational procedures, ( if I remember rightly, these are not anyone's monopoly). Or do you meant the elaboration of a health system focused on preventative health care, ( health clinics in poor areas, aggressive pre-natal care, aggressive infant health care, nutrition education, delopment of geriatric care etc;etc;). Most innovations haven't resulted in any significant health improvement over all, as many critics have pointed out. The real innovations have to do with health care distribution and access, not new drugs or procedures.

You suffer from a grand delusion...thinking of health care as a commodity. It isn't. It's much more of an ongoing process.

I don't consider health care to be a product, a commodity.

To put a different spin on the question and remind everyone of history; there's a tradition in Eastern Orthodox Christianity of revering those who are called the "Unmercenary Saints", that is, physicians who provided health care at no charge. That tradition, based on the Gospels, became the inspiration for the development of medical care in the Byzantine empire. Hospitals, clinics and hospices for the poor were established throughout the empire. The Byzantine Empire had, at its height, the best medical care system in the world, all based on not being mercenary or mercantile.
That tradition extended to Western Europe. The first hospitals and clinics were adjuncts to monasteries and convents and became the foundation for today's health care system in Europe, ( which is why nurses are called "sisters" in the U.K.).

That tradition, of unmercenary medical care, is at odds with the commodity thinking of today. It was at odds back in the Romamn Empuire, which is why those saints were often martyred by the AMA of their day.

"You sound as if this was a customer satisfaction survey?"

What do you think democracy is? It is a customer satisfaction survey and a popularity contest. What a great way to determine who gets healthcare."

I guess children and poor people don't count since they don't vote, right?

What about the moral obligation? Or does that count in your world?

Posted by: evagrius at September 1, 2004 07:54 AM

I don't believe bhaim's 92%, even from Business Week.

This number is backed up by Professor Robert Blendon's presentation (slide 2):

"American's Views of the Uninsured Issue"

The Insurance Status of the Public vs. Voters:

The Public:

Insured 85%
Uninsured 15%

Voter's (2000 Election):

Insured 92%
Uninsured 8%


http://www.familiesusa.org/site/DocServer/Families_USA.ppt?docID=2581

Posted by: bhaim at September 1, 2004 12:35 PM

PM, you say you pay $48/mo and you're in your late twenties, healty and self-employed. That's great, but get ready. I'm in my early 40s, healthy and self-employed as well; I bought my coverage ten years ago, when I was in my early thirties, for $130 a quarter ($1000 deductible.) Right now it is -- are you ready? -- $1268 a quarter ($5000 deductible.) It's almost ten times in ten years -- the rate of increase has been 20-30% early. Don't think that if you have an affordable option today, you'll have it forever, or even for a long time. They've got you in, now watch the premiums go through the roof. (And don't think you're gonna be able to keep it down by shopping around -- in this area there is no shopping around, especially for an individual.)

Posted by: Trieste at September 1, 2004 04:32 PM

I hear a lot of discussion about the prohibitive cost of individual policies, but very little mention of the fact that the insurers can and do refuse to cover anyone that they can't make money off of. Forget about getting insurance if you have any serious medical problems, but you don't even have to have serious problems to be rejected. Blue Cross turned me down because I use cortisone nasal spray for allergies.

Posted by: Deborah B at September 1, 2004 05:57 PM

I agree with evagrius and Anne's comments and would like to add that there is another reason for universal health care: the prevention of epidemics. Bacteria and viruses are not respecters of income levels or even sometimes, age and health. TB was once a real problem in this country (and looks as though it will be again)--it took a big public health (i.e., government involvement) initiative to change that (although some of the intiative had to do with changes in housing laws, not medicine). TB is a bacillus, it's spread by salivary droplets containing the bacillus. That means that if you're in the area of someone's sneeze, it's possible for you to be infected. Most people won't have a problem, some will--primarly children, anyone undernourished or with an impaired immune system. I can remember as a school child in NYC getting a TB test each year at the school. It was being done because it's a problem that effects the entire population. TB is becoming a problem again--in part because of decreased funding for our public health agencies. That means there is no staff to make sure people follow through with their medication regimen (AIDS has also meant more people w/impaired immune systems, more likely to contract illnesses such as TB). That speeds the development of resistant bacilli as well as increasing the chances that more people will be exposed (some of who will develop TB). TB tends to flourish in conditions of overcrowding and malnourishment--conditions you are more likely to find among those who have been "left behind" by Bush's wonderful growing economy (with market driven health insurance and health care). But your child, your elderly parent could contract TB from any of those people, on the street, in a store. People often do not know when they've been infected with TB either.

But if everyone has some kind of health care coverage it's more likely that: (1) TB will be detected more quickly (a chest x-ray is one way, there are also 2 diagnostic skin tests, neither 100% accurate, but none of these is a particularly expensive diagnostic tools); (2) drug resistant forms of TB will develop much more slowly because people w/TB will be better supervised while on a medication regimen.

The same could be said of AIDS/HIV, and the various forms of hepatitis. I can't see how there's any profit for the health insurance industry (without gov't subsidies) in mounting such public health programs. It wouldn't increase their short term profits. But from the point of view of a community, of state or federal government that places a priority on the health of its citizens--there's a great deal of reason to find the money for education, prevention and treatment programs.

In addition, there are "orphan" drugs, or goverment subsidized R & D programs to develop drugs for rare diseases. Why are they subsidized? Because the pharmecutical industry doesn't foresee sufficient profit from development of such drugs. There are too few people (with too little money I guess) that suffer from these illnesses. I wonder, if some of the "personal responsibility" people or their children developed such rare diseases if they'd feel it was ok to die, perhaps suffer great pain and disability prior to dying, because after all, the workings of the market mean there's not sufficient profit in a drug that might save their lives or those of their children or close friends, or prevent their being chronic invalids.

I realize I am not on point as I am talking about the pharmecutical industry, not the health insurance industry. But they are both factors in the provision of health care. I have never understood why a local, state or federal government cannot (as Canada and other nations do) negotiate drug prices on behalf of those it represents. But a HMO can. The point of an elective government is to act in the interests of all of its citizens (not just the really wealthy ones or the corporate ones). Making sure legal residents, citizens do not pay more then true market value of drugs seems like a worthwhile goal and activity of a government entity.

If Kerry is saying that the government should act as insurer of high risk people only, I disagree. That's essentially what happens now--those who are more likely to have health problems or high bills are the elderly, disabled and (perhaps) low income people (because they can't afford preventative health care or to take care of problems as they arise). A single payer system would insure everyone--including healthy people. If it's a taxpayer funded program then the taxpyers get the benefit of paying to insure the low risk instead of high risk people, as it does now. Instead of allowing the private sector to skim off the healthy ones so they can keep paying their CEOs exorbitant compensations and providing them with health care programs most of us can only dream about.

A question for the poster who said that of the people voting, most of them had health care. But what kind of health care? How many of them have had to contribute more to employer funded programs? How many of them have had to fight with their HMOs (and perhaps lost)? I am self-employed, I've got health insurance--with ever increasing premiums, decreasing coverage and a high deductible. By the criteria stated, I should fall into the category, of I've got it so it doesn't matter to me that other people don't--but I am in favor of single payer universal health care coverage. And it's partly because i know people without health care coverage (or only sporadic coverage) and because I strongly resent that the health insurance industry is exempt from anti-trust laws, has a powerful lobby, pays its upper management huge amounts and has been repeatedly shown (via successful litigation) have a fairly high proportion of businesses that seem (like much of the defense industry) the taxes I and millions of others pay as a kind of everfull trough for them to gorge themselves on--. The litigation (by the DOJ) started during the Clinton administration and hasn't really stopped (although Ashcroft may have decided it's not a priority compared to mounted much publicized but ultimately resoundingly unsuccessful trials of "terrorists). I think the degree and amount of skimming and fraud is itself some evidence that the current system isn't working well.

Posted by: azurite at September 2, 2004 01:47 PM

Good point about epidemics.

As vicious as it sounds, the U.S. was extremely lucky with regards to the SARS epidemic.
The ERs are already overwhelmed. What would have happened with SARS?

No "public choice" there. Mr. Ligit.

Posted by: evagrius at September 2, 2004 06:47 PM