TCS Daily

Health in the Balance

By Tim Worstall - April 18, 2005 12:00 AM

Paul Krugman's column on April 11 announced that he was going to look at and then offer plans for reform of the American health care system. Slightly contrary to what you might think, given my consistent sneering at his political stance and opinions, I'm all in favor of both.

Looking at the health care system shouldn't worry anyone, for it is a human built and operated system and this side of the Last Trump we're not going to have any such system which is perfect. Ongoing analysis and discussion of how to make it better is fine. I am also looking forward to seeing what his actual recommendations are, for I have a feeling that they might not actually be informed by the evidence he presents. He does, after all, have form in such matters, as his discussions of the UK pensions reforms showed. A certain amount of, umm, blurring of the facts was in evidence so that he could reach his desired conclusion (at least that's my opinion).

As soon as Krugman's article came out the left side of the blogosphere lit up (health reform is, as we know, one of the great hopes of liberal and progressive America. This Crooked Timber post gives a good idea of the critique along with links to others.)

The first major point that Krugman makes is just a little obvious:

        A recent survey of chief financial officers at major corporations found that 
        65 percent regard immediate action on health care costs as "very 

Well, yes, for as he says:

        General Motors now spends about $1,500 on health care for every 
        car it produces.

Now, assuming that the CFO of a company is both sentient and honest when a man walks into the office and says we're going to stick the taxpayer for one of your major costs, of course they will say yes. So not the most surprising statistic, unless you want to wonder about the concerns of the other 35%. The heart of his argument appears to be here:

        In the long run, medical progress may force us to make a harsh choice: 
        if we don't want to become a society in which the rich get life-saving 
        medical treatment and the rest of us don't, we'll have to pay much higher 
        taxes. The vast waste in our current system means, however, that effective 
        reform could both improve quality and cut costs, postponing the day of 

        To get effective reform, however, we'll need to shed some preconceptions 
        - in particular, the ideologically driven belief that government is always 
        the problem and market competition is always the solution.

        The fact is that in health care, the private sector is often bloated 
        and bureaucratic, while some government agencies - notably the Veterans 
        Administration system - are lean and efficient. In health care, competition 
        and personal choice can and do lead to higher costs and lower quality. 
        The United States has the most privatized, competitive health system in 
        the advanced world; it also has by far the highest costs, and close to 
        the worst results.

And one further line:

        I've encountered members of the journalistic elite who flatly refuse to 
        believe that France ranks much better on most measures of health care 
        quality than the United States.

My apologies but a small digression is needed here. When talking about other medical systems we need to clear up a few little phrases like single payer, single provider and the difference between funding via taxation and via compulsory insurance. Single payer means that the Government pays for all medical care, making it free to the user at the point of treatment. Single provider means that the government owns and operates all of the medical system. Canada is an example of the former, the UK of the latter (except for a small private sector, about 10%).

Funding via taxation means precisely that, that general revenue is raised and then fed through the normal political process to pay for the health system. This has, certainly from the UK experience, two effects: constituencies of Ministers do seem to get bright shiny new hospitals and the minutiae of treatments become national political events. Three weeks ago the UK was convulsed over whether one particular woman who had had her operation for a broken shoulder delayed eight times, including visits to her from a Cabinet Minister and the Leader of the Opposition. Perhaps not all that sensible a system.

Compulsory insurance is how, for example, the French system works. Deductions are made from wages and sent to a specific fund which then runs the health system, in large part by-passing the grandstanding and pork barrels of the elected politicians.

One small further digression. If we are going to think the unthinkable, ponder all of the issues surrounding health care, its financing and delivery, can we actually look at all of it? For example, let's bring tort reform and medical malpractice insurance to the table, shall we? Depending on whom you believe the costs of the current system are either $100 billion or $25 billion...whichever it is, whether 1% of GDP or 0.25%, a substantial enough sum that we might be able to risk annoying the trial lawyers as well as everyone else.

Now as we all know, prediction is very difficult, especially about the future, so I offer this only tentatively, but I think that Krugman will come up with a system that is a single provider, single payer one. Note that the VA (which is both) is regarded as lean and efficient, that competition is regarded as bad (I'm willing to believe that at times and in places this can be so but not in the provision of a service like health care), and that personal choice leads to higher costs. To put it crudely, that he will propose a system whereby we pay taxes and then get back the treatment that the bureaucracy thinks we should have. Essentially the UK's National Health System. That is, one of the very few rich world ones that is truly awful. The current target (amongst the 1600 that govern this centrally managed system) is that no one will wait more than 6 months for an operation, and Tony Blair recently boasted about how few there are waiting longer than this. (Note that even Ted at CT doesn't think this is a good idea.)

This is where I think the bait and switch will come in, for he has, as above, rightly praised the French system. Yet the French system is not a single payer system at all. The compulsory insurance element collected through pay packets pays for only a portion of treatment costs (35-65% on prescriptions, 70% in general, except in some exceptional circumstances like cancer treatment). There are myriad private insurers who offer a variety of plans to cover the un-reimbursed costs and sometimes the extra costs that can be charged over the prixe fixe. One could with a straight face actually state that this is less generous than the current Medicare and Medicaid systems in the US. Anyone want to try and get the AARP behind the idea that the old geezers should be paying 65% of their Viagra prescriptions and 30% of the cost of their GP visit?

The second thing is that it is not a single provider system. There are indeed publicly owned hospitals, as there are non-profit or charitable ones, as well as profit seeking private providers. All patients have complete freedom to seek treatment from whomever they wish, so certainly an amount of personal choice there.

What worries me is that the Professor will point to a decent system, that of France, and use it to propose a terrible system, that of the UK.

One final point. Krugman obviously thinks that the US currently pays too much for its health care and he might even be right. Yet as we know, the demand for health care is virtually unlimited, very few of us passing gently into the long dark night. There has to be some form of rationing, by price, by queue, by diktat, and if I'm right, and he's going to propose a system which is free at the point of treatment, by eliminating the price structure's effect in reducing demand, just how is he going to limit the system's costs?

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