What passes for “health insurance” in the United States today is not actually insurance. It is really just a subsidy that some people receive on their medical bills while others do not. Rather than serving as a check on the constantly rising prices of medical products and services, this phony “insurance” combined with state regulation is precisely the reason that prices are so high and will continue to rise. The economics of it are really quite simple. They are so elementary in fact that you would have to be a Nobel laureate with a Phd in economics and teach at an elite Ivy League University in order to deny them.
All else being equal, a regulated supply of a given product or service combined with a subsidy to buyers is going to lead to skyrocketing prices no matter what the product or service is. It will lead to a two-tiered caste system where those that are not receiving subsidies will be effectively priced out of the market and unable to afford even basic services, while those that are receiving subsidies will have a perverse incentive to hoard and overuse resources. In the case of health care a Pareto-inefficient outcome is created where those that benefit are harming others by doing so. People without subsidies cannot get basic care because prices are driven up and resources are tied up by those enjoying subsidies. People with a health care subsidy plan get expensive and often unnecessary treatments and tend to overuse health care industry resources to treat even mild ailments that would otherwise be ignored or treated with home remedies. Doctors and hospital managers have an incentive to increase revenues by over-treating people that have a generous subsidy plan, while the patient has no incentive to refuse. They have no idea what the price for various treatments actually is, and even if they did, why would they care?
“Why of course I’ll get an MRI on that ingrowing toenail Doc. Why not? Only the best for me, and I’ll never see a bill for it!”
On the flip side, a free market in health care would lower prices in two ways. First it would lead to a greater supply of service providers who would have to compete for customers and *GASP* maybe even advertise their prices! Shock! Horror! Second, it would reduce the artificially inflated demand of consumers who could now use this price signal to make an informed decision concerning their needs and what they can afford rather than just hoarding because someone else is footing the bill. There would also no doubt be a system of actual insurance for catastrophic injuries or unexpected illnesses. Unlike what passes for insurance today this would be real insurance. Rates and payouts would be determined by a rational assessment of risk to an individual rather than on their membership in an arbitrary or politically determined pool where risk assessment is specifically forbidden by government regulation. This would be better than the present situation from both a moral and a utilitarian perspective. A free market would not only lead to greater abundance and cheaper services, it would also be more fair and equal.
Contrary to Paul Krugman there is no reason that health care cannot be bought and sold on an open market like any other product or service. There is no such thing as a special class of economics with its own particular rules for health care that are unique and different from all other services. Krugman is either disastrously wrong or he is a liar. He is not a stupid man, so I suspect that he is lying. His agenda is to reinforce the ideological prejudices of his privileged baby-boomer audience and maintain them as a loyal constituency for his political masters. Despite his seemingly impressive credentials Krugman does not actually engage in any activity that could reasonably be called economic analysis. He is a political operative. He manages and directs elite liberal public opinion on behalf of the state and its rent-seeking clients. His NY Times column is really just government propaganda and should be taken about as seriously as a Marxist pamphlet handed out at an “occupy” protest.
The service Krugman loyally performs for the government and its clients in the AMA, the hospital worker unions and who knows how many government “health” bureaucracies is to consistently find a way to shift the blame for problems created by the violence that they benefit from to the imaginary bogeyman of a nonexistent “free market.” Hence this rather odious piece of propaganda in which he comes out with howlers like this:
“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.”
Presumably Krugman knows everything about all health care systems since the beginning of time and is qualified to judge whether they are successful. Successful for whom and compared to what? Nowhere in his blog post does he actually provide any evidence, much less overwhelming evidence for his claim that there are no examples. The only link provided is to an opinion paper from an economics journal published in 1963 that agrees with him ideologically but contains no evidence for his broad claim. The paper also contains flawed theory and many predictions that have since proved false. It is laughable that supposedly educated people take this man seriously.
What is it that Krugman claims is so different about health care that makes it impossible for people to engage in peaceful, voluntary transactions? This is rich:
“There are two strongly distinctive aspects of health care. One is that you don’t know when or whether you’ll need care — but if you do, the care can be extremely expensive.”
This is dishonest in two ways. One, this situation is not distinctive to health care. These circumstances occur in many contexts. This is actually just a general description of circumstances in which insurance is appropriate. This could just as easily apply to cars. You don’t know when you may get into a T-bone collision at an intersection, but if you do it can be extremely expensive. So health care is not at all unique in this respect. Why does Krugman not call for national car insurance? If the market cannot respond to this set of circumstances, then we must have government managed insurance in all such cases. Right? Why is car insurance, while not problem free, much less problematic than health care?
Secondly, health subsidy plans as they exist now, whether nominally “private” or provided directly by government, are not limited to covering only this kind of catastrophic scenario. They cover everything even annual checkups, which are analogous to a tune-up for a car, and maintenance medications that could be considered analogous to gas and oil. Can you imagine what would happen to oil prices if the government were to require that all car insurance policies cover oil changes and gas? As I said, the economics of this are not hard to grasp. Krugman is deliberately misleading his audience.
Why does Krugman do this? He does it because he is a spokesperson for the political class. That is the class of people who derive their incomes by the political means, meaning violence, as opposed to the economic means, meaning peaceful trade. He is providing pseudo-economic cover for those that are engaged in price fixing and rent seeking off the artificial scarcity and inflated prices caused by the current statist system. He wants to expand and entrench state involvement in the health care industry that is already virtually run entirely by government.
The purpose of the American Medical Association is to limit the supply of doctors and thus drive up the prices that its members can charge. It is basically a guild style labor union. This has been true since the association was incorporated in 1897 when item one on their agenda was to prevent black people from becoming doctors. More recently they have been involved in efforts to block retail stores from opening up low cost clinics where their customers could get basic health services without much hassle that would be cheap enough even for people without a subsidy plan. Clearly these altruistic doctors really just care about your health. They care so much so that they will use force to prevent you from ever engaging with anyone other than themselves for your care.
The health care system in the “United States” is already socialist. It is effectively run by the government with a few areas of nominal private control. Medicare and Medicaid, which are subsidy packages provided directly by the “United States Federal Government” subsidized or paid outright for health care services for roughly 100 million people in 2011. That is about three times the number of people that live in “Canada.” The “United States” actually has a far bigger socialist medical system than “Canada,” and that is just the subsidy programs that are directly run by the state. All the other nominally “private” subsidy plans, the providers of which are routinely attacked as evil and greedy by socialists, are controlled by government decree. If they were not, they would not do business the way they do. They would operate more like car insurance companies that only indemnify their clients for an actual insurable risk rather than just paying their bills because the government tells them they have to.
So don’t get it mixed up. Socialist health care is not a potential danger, it is the current reality and has been for some time. Paul Krugman’s job is to distort that reality and run cover for those that benefit from the status quo. When you discuss health care with people, don’t help him by using the word “insurance” to describe subsidies, which is what is really going on.