August 27, 2004

#165: Have another donut?

P. Krugman

We are always surprised when Paul Krugman writes a column that is thoughtful and free of partisan cheap shots. In America's Failing Health (08/27/04) he comes pretty close and for the second time in recent memory, the topic of his thoughtfulness is health care. Health vs. Wealth (07/09/04) was the other one (see Squad Report #161). Here is the core of today's column:

"Clearly, health care reform is an urgent social and economic issue. But who has the right answer?
The 2004 Economic Report of the President told us what George Bush's economists think, though we're unlikely to hear anything as blunt at next week's convention. According to the report, health costs are too high because people have too much insurance and purchase too much medical care. What we need, then, are policies, like tax-advantaged health savings accounts tied to plans with high deductibles, that induce people to pay more of their medical expenses out of pocket. (Cynics would say that this is just a rationale for yet another tax shelter for the wealthy, but the economists who wrote the report are probably sincere.)
John Kerry's economic advisers have a very different analysis: they believe that health costs are too high because private insurance companies have excessive overhead, mainly because they are trying to avoid covering high-risk patients. What we need, according to this view, is for the government to assume more of the risk, for example by picking up catastrophic health costs, thereby reducing the incentive for socially wasteful spending, and making employment-based insurance easier to get.
A smart economist can come up with theoretical justifications for either argument. The evidence suggests, however, that the Kerry position is much closer to the truth."
We disagree, of course, for all the reasons stated in SR #161 but this time Krugman goes a little farther and cites some data suggesting that Americans pay more and get less benefit (based on longevity and infant mortality) than countries with a single-payer health care system, e.g., Canada and France. We checked the longevity data and life expectancy is very close in all advanced countries. So he doesn't have a very strong point here.

However, if we can get on our own soapbox for a moment, the reasons for "America's Failing Health" become pretty obvious if you just look around any convenience store. The amount of space devoted to junk food (cookies, crackers, candy, soda, ice cream and pastry) is appalling. We have some very fat people in this country. Life insurers routinely charge higher premiums to the obese. But in health care insurance the healthy it seems subsidize the obese through pooling. Then, as Krugman laments, since insurers cannot charge the obese a premium that reflects their health status, they find clever ways to exclude high-risk customers altogether.

Higher premiums to the obese might send them a price signal to lose some weight. Unfortunately, we seem to be moving in the opposite direction. There is a move afoot to make obesity itself a disease, rather than a contributor to other diseases, and therefore directly eligible for reimbursement for medical treatment. What a terrible idea. Instead of a price signal, this move would absolve the obese of all responsibility. They are simply sick.

Have another donut? Don't mind if I do

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at August 27, 2004 12:58 PM
Weblog by John Weidner