Saturday, January 06, 2007

Krugman on Medicare

Paul Krugman has a great piece on health care in the New York Times. His basic premise is an obvious one: traditional Medicare, a single-payer system (the government pays doctors and hospitals) turns out to be a lot more efficient than private sector alternatives. The first instinct of Republicans is to turn to the market. In many cases, that can be justified as markets are often (typically?) more efficient than the government. But not with health care. There is a good reason that the United States spends far more (as a percent of GDP) than the average European country on health care, and yet gets less value for its money.

In the 1990s, the government tried to entice people to leave traditional Medicare for private plans, with the government paying a fee instead to the HMO. The idea was that the profit motive would keep costs down. But it didn't work out that way. HMOs started by engaging in adverse selection: deliberately picking on the healthiest seniors. But when this practice ended, it turned out that HMOs could simply not compete with Medicare. Why? The latter is efficiently run, with no huge overhead.

That wasn't the end. Bush came along. Bush, of course never paid much heed to the "reality-based community" and let ideology trump empirical assessment. In 2003, the administration increased payments to HMOs, and heavily subsidized them. This program now costs 11 percent more per beneficiary than traditional Medicare. Clearly, this a a direct transfer from the taxpayer to the insurance industry. Standard Bush administration practice, really.

So far so good. Now the drug companies want a piece of the action. In fact, Bush's Medicare drug coverage (Medicare Part D) is even worse: traditional Medicare is totally out of the picture, as the government does not pay directly for the drug. Instead, you join a private insurance plan, and the government then sends out the subsidy. This is appalling on two levels. First, the government is prohibited from negotiating prices with the drug companies. Of course, Republicans will tell you this is "socialist price controls" or something like it. Nonsense! It's a fair negotiation between two players in the market (technically, the government takes advantage ot is monopsony power). This, plus the skim that the insurance company takes for acting as middleman, pushes up costs dramatically. Doesn't this sound like Tony Soprano in charge of health care?

Krugman concludes with a moral point: "The costs imposed on Medicare by gratuitous privatization are almost certainly higher than the cost of providing health insurance to the eight million children in the United States who lack coverage". This is a direct transfer of resources from the poor and the uninsured to the insurance and drug industries (two of the biggest lobbyists, by the way). Then again, right-wing Catholics with scoff at this problem as the more application of "prudential judgment". See no evil.

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