Special Report

Kerry-Krugman Health Care

It picks up where Hillary Care left off -- arrogantly.

By 7.22.04

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A recent column by Paul Krugman in the New York Times promoted Senator John Kerry's plan to reform America's health-care system by having the federal government "re-insure" private health-care companies for 75% of the cost of catastrophic care. A subsequent column panned President Bush's more market-oriented approach and included an extended criticism of Health Savings Accounts (HSAs). Far from being persuasive, the columns were representative of all that is wrong with the political left's approach to health care.

HSAs Are Just For The Healthy and Wealthy: Krugman repeats what has become scripture among opponents of HSAs. HSAs "offer the already affluent…yet another tax shelter." Worse, HSAs "will actually increase the number of uninsured" because they "would provide healthier and wealthier employees an incentive to opt out" of traditional health-insurance plans in exchange for higher paychecks. This "would lead to higher insurance premiums for those who remain in traditional plans. This would cause some companies to stop providing health insurance, or raise employee contributions to a level some workers can't afford."

The main problem with this argument is simple: the evidence doesn't support it. Data from Assurant Health and eHealthInsurance on their early experience with HSAs shows that 43% of those people purchasing HSAs were previously uninsured, and 46% had family incomes less than $50,000. It's no mystery as to why: HSA plans, because they have higher deductibles, are cheaper than traditional plans.

The data also suggests that it is people with more health risks who may be more likely to purchase HSAs. Seventy percent of those purchasing HSA plans were over 40, which is remarkable given that older people tend to be sicker. Data on claim incident rates in Health Reimbursement Accounts (similar to HSAs) from Destiny Health Corporation also suggested that sicker people were more likely to purchase such plans. The rate was 4.6 per 1,000 members, while the standard rate would be 2.3 per 1,000 members.

John Goodman, president of the conservative National Center for Policy Analysis, and one of the creators of HSAs, says it should be no surprise that people with greater health risks would find HSAs attractive. "If you have a chronic condition, do you want to be able to decide for yourself which health services to purchase, or do you want an HMO deciding that for you? The myopia of the opponents of HSAs is rooted in their view that HSAs are only savings accounts. They are much more than that; they are a way for people to self-insure and to have more control over their health expenses."

And contrary to Krugman's contention, HSA policies are likely to encourage more companies to provide health insurance. A study by Aetna found that companies with consumer-directed plans saw their health care costs drop by 11% because employees were more careful in their use of health-care dollars. Another way costs will be lowered is the avoidance of large long-term health-care costs via the use of more preventive care. Assurant found that those purchasing HSAs made 31% more preventive-care visits to doctors than those in traditional health insurance. As HSAs make health-insurance less expensive, companies will be more likely to purchase health insurance for their employees.

44 Million Uninsured: Not surprisingly, Krugman repeats the inaccurate statistic that "44 million people" are uninsured. I've gone into depth about the problems with that number previously, so I'll limit myself to one general comment here. Krugman loves to rely on reports from the Congressional Budget Office. In fact, in one of the columns on health care he approvingly cites a CBO report that "estimates that one-third of retirees" with drug coverage under their employers will lose it under the new Bush Medicare plan. So why does Krugman overlook the CBO report that shows the 44 million statistic as dubious?

Government Can Do It Cheaper: Perhaps Krugman's biggest laugher in the two columns is this single-sentence paragraph:

By directly assuming much of the risk of catastrophic illness, the government can avoid all of this waste, and it can eliminate a lot of suffering while actually reducing the amount that the nation spends on health care.

How can an economist contend that what amounts to a government subsidy will actually reduce the amount that America spends on health care? As Linda Gorman, an economist with the free-market Independence Institute, puts it, "When the government gets involved it is very difficult to control costs because no one in charge profits from cost control. The free market tries to accurately price risk to reflect the additional costs of potentially expensive behaviors, say, charging people more if they smoke or skydive. When politicians control prices, politically correct risks are likely to get a free pass." Indeed, the health-care costs are likely to rise much higher under the Kerry plan.

One way they might go higher is that insurance companies will have less incentive to price risk since they will be able to pass much of the resulting costs along to the federal government. They can then fatten their bottom lines by selling cheaper policies to individuals with high amounts of health risk. In fact, that is exactly what they will have to do under the Kerry plan, since the so-called savings must be used to reduce workers' premiums. With cheaper insurance policies, more people are likely to engage in activities with high amounts of health risk, thereby increasing overall health costs.

Another way costs will go higher is that the system will inevitably buckle to political pressure. Every health-care interest group will try to get its malady covered by the federal government should the Kerry plan ever become law. Think the concept of "catastrophic" will be limited to car-accident victims and cancer patients? Then perhaps you should read up on the recent decision by Medicare to redefine obesity as an illness.

This gives the lie to Krugman's claim that the Kerry plan would cost the federal government "$653 billion over the next decade." As any student of Medicare and Medicaid knows -- and as Krugman should know -- government health care programs always cost more than initially projected.

Arrogance: What is it with liberals and health care? Every time they don't achieve their desired policy, they act as though no one, except them, took the preceding debate seriously. Hence the title of Hillary Clinton's recent piece in the New York Times, "Now Can We Talk About Health Care?" Presumably the nation wasn't ready to talk about it back in 1993-94 because back then we didn't enact Hillary-Care. Krugman is now picking up where Hillary's arrogance left off:

Will actual policy issues play any role in this election? Not if the White House can help it. But if some policy substance does manage to be heard over the clanging of conveniently timed terror alerts, voters will realize that they face some stark choices. Here's one of them: tax cuts for the very well-off versus health insurance.

He concludes that column with, "If we ever get a clear national debate about health care and taxes, I don't see how President Bush wins it." In other words, if John Kerry doesn't win the health care debate, then the Bushies succeeded in confusing the clueless rubes that are the American voters.

Of course, there are a lot of ways that Kerry could lose the debate. Enough Americans might think that it is unfair that the wealthy pay for everyone else's health-care, or they might have serious reservation about the effectiveness of a government-run system. But Krugman gives no quarter to such concerns. He just repeats the sentiment that he doesn't "see how Bush can win this debate." If he really believes that, then he either has ideological blinders on, or is being disingenuous. Maybe both.

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