May 2, 2005

#180: "Our system is hard to describe, but it’s hardly private"

P. Krugman


It’s more of the same in Paul Krugman’s latest demagoguery A Private Obsession (04/29/05). He begins with yet another attack on the U.S. healthcare system, this time by claiming it is the most “private” in the world. Once he’s pinned on the “private” label, he then trashes the system and blames all of its ills on…drum roll please….being private.

We have two obvious objections: First, the U.S. system is private only in the sense that private organizations, employers or employer contracted organizations such as HMOs, write the checks. But such a weird system as ours is made possible only by heavy government subsidies, for example, treating employer contributions as nontaxable income. Without these subsidies (and other strings-attached rigidities) the system would have collapsed years ago. Second, and more fundamentally, one thinks of a private system as one in which the market is allowed to operate and consumers are free to spend their dollars on whatever they want, including healthcare. Clearly, that’s not happening in the U.S. Our system is hard to describe, but it’s hardly private.

Krugman pointed this out himself just two weeks ago in Passing the Buck (04/22/05) as he tried to explain why our system is so dysfunctional:

“An important part of the answer is that much of our health care spending is devoted to passing the buck: trying to get someone else to pay the bills”

He’s exactly right. Except he then draws exactly the wrong conclusion. When someone else pays the bills, consumers over-consume, providers misallocate and you end up with a mess like our current healthcare system. We agree with Krugman on that much. But his solution, universal health care, is even worse since that is the ultimate example of “someone else” paying the bills. In that case, the “someone else” is the government.

That’s why we like the part of the President’s plan that includes health savings accounts (HSAs), which would be an important step toward putting consumers in charge of their own healthcare spending. They might, for example, choose to pay minor health care bills out-of-pocket and use the bulk of their healthcare budget to buy catastrophic health insurance. Or, they might spend more on life style changes and other preventive healthcare practices that qualify them for lower health insurance generally. In either case consumer demand would drive the allocation of services as is the case in most private transactions.

Krugman, of course, is bitterly opposed to HSAs because-–you guessed it– they're private!

[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 May 2, 2005 9:00 AM
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