Is This the Best the Nobel Prize Winner Can Do?

Why markets can’t cure healthcare - Paul Krugman Blog - NYTimes.com: "Why markets can’t cure healthcare

Judging both from comments on this blog and from some of my mail, a significant number of Americans believe that the answer to our health care problems — indeed, the only answer — is to rely on the free market. Quite a few seem to believe that this view reflects the lessons of economic theory.

Not so."

Krugman so vastly oversimplifies things as to render this whole column meaningless. I don't think anyone is arguing for laissez faire health care. But showing that a laissez faire free market approach cannot totally solve all health care economics problems is a far cry showing that free market principles have no place in health care. Read the column. Krugman claims:

1) that the free market is not relevant to health care because the expenditures are large and unpredictable. Sounds to me like he's focusing only on the catastrophic side of health care. But today's bloated "insurance" plans, distorted by more than a half century of government meddling are about a lot more than catastrophic care. They cover virtually all doctor visits, drugs, therapies, etc. In each of these myriad smaller transactions, market forces would be vastly more effective at optimizing the use of health care resources than the arbitrary guidlines and mandates coming down from government. A quick recent example: I was at the dermatologist and he said he needed to remove a large mole from my back. He could either cut out all the skin in the affected area (as a previous dermatologist had done elsewhere on my back a year earlier), or he could shave off only the affected layers of the skin, eliminating the need for stitches. At this point, we should have had a conversation about the cost of the two procedures, but since it was irrelevant to me, we didn't. I'd pay the same either way. But the skin removal procedure was in fact significantly more expensive. I chose the less expensive procedure in this case, but not because of cost, but because the more involved procedure would have required two extra visits to the doctor's office. Think how many millions of times a day such small decisions are made, and think how hard it is for government to oversee them all vs. just giving the patient appropriate information and incentives.

2) You can't trust insurance companies.
Well, sorry, but I trust an insurance company competing for my business FAR more than I trust a monopoly board of faceless government bureaucrats. I have been on private insurance for nearly thirty years, and no member of my family has been denied needed care, even through some pretty serious and expensive medical issues.

3) Private insurers waste money in their efforts to resist paying out on claims.
I am sure that there is truth to this, but it is certainly not as significant as another fact. It is estimated that waste, fraud and abuse in Medicare and Medicaid are in the 15-18% range, whereas in private plans it is about 2%.

4) You can't rely on experience or comparison shopping.
You can't now, because there is no market for such information. Consumers of health care currently don't give a darn about cost. When consumers do pay out of their pocket, for example with Lasik eye surgery, or cosmetic procedures, there is a lot more information available about costs and outcomes. And by the way, competition has continuously driven lower costs and better procedures in these areas.

Krugman's column is sloppy, lazy, and wrong. There is certainly a legitimate government role in health care, to address the ways in which health care does not behave economically like other goods and services. But as much as possible, we must deliver health care in a way that leverages free market principles, not central government control, to optimally utilize scarce resources.