The Public Policy

Another Dose of Krugman

All his prescriptions lure patients into government-run emergency wards.

By 4.28.05

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I'll give credit where credit is due: unlike on Social Security, Paul Krugman has followed through with his claim that he would back up his assertions about health care in future columns. Yet his recent effort is no more impressive. It is riddled with bogus comparisons, both explicit and implied.

He begins with an old lefty standby: "...we have lower life-expectancy and higher infant-mortality rates than countries that spend less than half as much per person." As I've explained previously, life expectancy and infant mortality are largely meaningless measures of the efficacy of a health-care system, as they are due largely to factors such as genetics and lifestyle, with certain ethnic groups reducing America's averages. But let me add a few quick points here.

First, you can see the link of life expectancy to genetics and lifestyle by comparing ethnic groups across nations. If America's supposedly inferior health-care system were the cause of lower life expectancy, then you would expect to see that ethnic groups here have shorter life spans than their counterparts in other countries. But that is not the case. For example, John C. Goodman, Gerald L. Musgrave, and Devon M. Herrick point out that Japanese Americans have life expectancy nearly identical to people in Japan.

The comparison of infant morality is doubly misleading because many countries do not report infant deaths the same way we do. Switzerland, to use one example, doesn't count babies measuring under 30 centimeters as a live birth. As a result, our infant mortality rate appears much higher when compared to that of other nations.

Next, Krugman relies on another old lefty standby:

According to the World Health Organization, in the United States administrative expenses eat up about 15 percent of the money paid in premiums to private health insurance companies, but only 4 percent of the budgets of public insurance programs, which consist mainly of Medicare and Medicaid. The numbers for both public and private insurance are similar in other countries -- but because we rely much more heavily than anyone else on private insurance, our total administrative costs are much higher.

Measuring administrative costs is a far trickier business than Krugman lets on. Reviewing the literature, Henry Aaron of the Brookings Institution was "struck by how hard it is to identify and estimate administrative costs accurately at a single point in time in a single nation, how doubly hard it is to compare costs at a single point in time among nations, and how triply hard it is to make meaningful international comparisons of trends in administrative costs over time." Indeed, the study Krugman refers to compares apples to oranges by measuring administrative costs in private insurance as a percentage of income while measuring administrative costs in public health care programs as a percentage of expenditures.

Comparisons of public and private health insurance are problematic for other reasons. Such comparisons may understate the administrative costs of Medicare and Medicaid because they do not factor in the cost of collecting the tax revenue necessary to fund such programs. Furthermore, private health insurance companies have a myriad of government regulations they must comply with that Medicare and Medicaid do not. And these regulations are expensive: According to a Cato Institute study, they come to about $99 billion annually.

At this point Krugman begins beating up on the private sector in support of his implicit assumption that government can do better. First, he claims that private insurance imposes compliance costs on doctors:

And the costs directly incurred by insurers are only half the story. Doctors "must hire office personnel just to deal with the insurance companies," Dr. Atul Gawande, a practicing physician, wrote in The New Yorker. "A well-run office can get the insurer's rejection rate down from 30 percent to, say, 15 percent. That's how a doctor makes money.... It's a war with insurance, every step of the way."

Has he looked at how much hassle it is for doctors to comply with Medicare? There are thousands of pages of laws and regulations, not to mention over 7,000 Medicare billing codes that doctors have to contend with. Many doctors are no longer taking Medicare patients due to cuts in payment rates. Dr. Mark Krotowski, who stopped taking new Medicare patients in 2002, said, "I love my elderly patients. But they are very sick. They need a lot of attention, a lot of medications and a lot of time. Medicare reimbursement has not kept up with inflation or the cost of providing care to the elderly." Perhaps Krugman should be more familiar with such problems; that quote was taken from an article in the New York Times.

Next, he notes how much private insurance hurts our economy:

First, in the U.S. system, medical costs act as a tax on employment. For example, General Motors is losing money on every car it makes because of the burden of health care costs. As a result, it may be forced to lay off thousands of workers, or may even go out of business. Yet the insurance premiums saved by firing workers are no saving at all to society as a whole: somebody still ends up paying the bills.

Government-run health care will impose a direct tax on employment -- a big one. We would do well to look at some economic indicators of countries with heavy government involvement in health care. America has a lower unemployment rate than most nations with more government involvement in health care, and a recent Labor Department report shows that none have a per-capita GDP near ours. Government-run health care will be a huge addition to our welfare state, and as other countries show, big welfare states impose high economic costs.

And then there is the inevitable "private insurance is killing people" claim:

Second, Americans without insurance eventually receive medical care -- but the operative word is "eventually." According to Kaiser Family Foundation data, the uninsured are about three times as likely as the insured to postpone seeking care, fail to get needed care, leave prescriptions unfilled or skip recommended treatment. And many end up disabled -- or die -- because of these delays.

Government-run insurance kills people too, and at higher rates. For example, a recent news story from Canada exposed how that nation's chronic shortage of hospital beds likely led to a London, Ontario man's death from a blood clot. The evidence is not just anecdotal. Of women diagnosed with breast cancer in the United States, one-fourth die of the disease. About one-third die in France and Germany, and a little less than half do in the United Kingdom. Of men diagnosed with prostate cancer, less than one-fifth die in the U.S., while one-fourth do in Canada, nearly half in France, and more than half in the U.K.

By relying on misleading comparisons, Krugman's case for socialized medicine comes up way short. The answer to our health-care problems involves adopting more market-based reforms, the most important of which make health care consumer-oriented. But Krugman is going to take aim at those too:

In the next column in this series, I'll talk about how ideology leads to "reforms" that make things worse.

I can hardly wait.

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About the Author

David Hogberg is a senior fellow at the National Center for Public Policy Research.  Follow David Hogberg on Twitter.