Paul Krugman Says All the Evidence Shows Government Controls Health Costs Better than the Private Sector. Here's Some Evidence that Says Otherwise.

In The New York Times, columnist Paul Krugman dubs the GOP ticket “Medicare Killers” and attacks proposals to integrate private insurance competition into the public health system:

Still, wouldn’t private insurers reduce costs through the magic of the marketplace? No. All, and I mean all, the evidence says that public systems like Medicare and Medicaid, which have less bureaucracy than private insurers (if you can’t believe this, you’ve never had to deal with an insurance company) and greater bargaining power, are better than the private sector at controlling costs.

When he said “all,” I’m sure he meant some, because there are in fact studies showing that private insurers do a better job of keeping both administrative costs and premiums in check. For example, a 2009 metastudy of high-quality research consumer driven health plans (CDHPs) by the American Academy of Actuaries found that private, consumer driven plans pairing high-deductible insurance with health savings accounts found substantial first-year savings and the potential for additional savings in successive years. This is spending that actually dropped, which is a huge departure from most health plans where the only question is how much spending increases. By engaging people as health care consumers, the private, market-driven CDHP plans helped keep costs down.

What about bureaucracy? A study by consultants at Millman for the Council on Affordable Health Insurance, an industry group, looked at all the ways that Medicare hides its administrative costs, for example by shifting many expenses to other parts of the federal budget. The study found that private insurance administrative costs are actually a lot more competitive than is commonly thought. And taken on a strict per-person basis, rather than as a percentage of the total budget, Medicare’s administrative costs are actually higher than private sector counterparts. No matter what, it’s hard to respect the efficiency and effectiveness of a set of programs — Medicare and Medicaid — that the government’s own watchdogs say blow about $65 billion every year on improper payments, everything from mistaken billing to outright fraud. That’s $65 billion in taxpayer money that these programs are paying out that they shouldn’t.

Or just look at Massachusetts, which enacted a state-sized version of ObamaCare in 2006. According to a May report in the New England Journal of Medicine, increased government in the health sector hasn't exactly held costs in check. The state "is now struggling to control increasing health care costs that threaten the continued viability of its reforms," the piece reports, noting that Massachusetts is on track to spend 54 percent of its budget on health care this year, up from 49 percent in 2012. State officials are pushing reforms, but where savings are concerned, "innovations in the private sector have arguably taken the lead."

But don’t tell Paul Krugman. He’s still got more spittle: 

I know this flies in the face of free-market dogma, but it’s just a fact. You can see this fact in the history of Medicare Advantage, which is run through private insurers and has consistently had higher costs than traditional Medicare. 

Except that just recently a study in the Journal of the American Medical Association reported that private plans operating in Medicare Advantage actually provide equal benefits to the government-run, fee-for-service Medicare alternative — and for about 9 percent less. Yes, the plans cost more overall, but when you compare the cost of equivalent services, they’re cheaper.

But what about Medicaid? It’s pretty cheap, right? 

You can see it from comparisons between Medicaid and private insurance: Medicaid costs much less.

But what’s one of the leading ways that states are trying to restrain the Medicaid spending that’s threatening to chew through their entire budgets? Turning Medicaid case loads over to the private sector. And it seems to be producing savings. As a 2009 Lewin group metastudy for the insurance industry pointed out, nearly all of the 24 studies reviewed showed savings in states that pursued managed care, a system in which states contract with private insurers to run state Medicaid programs. A 2011 article in the health policy journal Health Affairs agreed with the basic premise. Although the Health Affairs piece noted that although managed care’s effect on health outcomes was unknown, it also agreed that “the evidence suggests that states are in fact likely to achieve billions of dollars in savings through these arrangements.” I know this flies in the face of Krugman's dogma. But these are just the facts. 

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Cenotaph||

    "obvious", "just a fact", "all the evidence says" ... sure signs of bullshit.

    Welcome back to the side of the angels, P-Sud.

  • Cliché Bandit||

    Can't he just go away.

  • geo1113||

    "Paul Krugman says" pretty much leads to "evidence that says otherwise."

  • JW||

    Paul Krugman Says All the Evidence Shows Government Controls Health Costs Better than the Private Sector.

    Price controls control costs betterer!?

    Blindly feels around for shocked face.

  • Auric Demonocles||

    "Take this little money or else"

    ...

    "Look how cheaply we got everything!"

  • Brian D||

    Krugman proven to be an idiot? NO WAI!

  • mad libertarian guy||

    How convenient of Krugabe to tell me about all of these awesome studies which show the efficacy of .gov sponsored health care, yet he fails to point me to even one.

    The point is that he needn't because his audience laps his words up without any sense of skepticism at all. Krugman said it, therefore it MUST be true.

  • Fist of Etiquette||

    Get back to me when you have a Nobel, Suderman.

  • GW||

    Obama has one, so he is clearly qualified to run health care.

  • Pi Guy||

    Raining some Nobel Peace Drones (I wish I could remember who coined that phrase - awesome!) on the old and sick people would reduce health care costs.

    I mean, TOTUS has the power to take out American citizens - ammirite?

  • ||

    When/if Obama gets a second term, he can then be tapped by the next Democratic President to run the newly re-named Department of Peace (the former Department of Defense, more formerly known as the Department of War).

  • Red Rocks Rockin||

    If government is so effective at holding down the cost of healthcare, how come federal spending has gone from $50 billion in 1980 to over $800 billion today?

  • Brett L||

    It would be $50T without gummint saving us!

  • Auric Demonocles||

    You precognizant bastard!

  • Auric Demonocles||

    Without government holding it back, it would have gone up to $80 bajrillion!

    /T o n y

  • Red Rocks Rockin||

    On another board:

    Prog Moron: "Without the stimulus, unemployment would have been 15%!!!"

    Me: "The U-6 is currently 15%" (with link)

    Prog Moron: No response after plugging the thread with 6 or 7 posts.

  • Auric Demonocles||

    Also, excellent alt-text.

  • ||

    And as a nice bonus to providers, state programs pay like shit!

    I work for a large hospital in MA where Medicaid/Medicare account for 42% of our volume and 21% of our payments. By comparison, a private plan like BCBS accounts for 25% of patient volume but 35% of payments. And this is before any nonsense like the "doc fix".

    Care to imagine how many doctors will simply refuse to accept any Medicare or Medicaid patients in the future? I'm guessing that wasn't factored into Herr Krugman's analysis. And that's not to mention that the whole ridiculous bureaucratic infrastructure was built up to deal with the labyrinthine Medicare FFS billing requirements in the first place.

  • Cenotaph||

    Care to imagine how many doctors will simply refuse to accept any Medicare or Medicaid patients in the future?

    None, after the feds make it a felony.

  • Mattiacci||

    We'll just run out of doctors.

    But hey, health care costs will be really low!

  • Casca||

    When the federal government gets our veterans health care right then I might trust them with someone else's. The VA has no cost controls or quality controls that work and veterans get second rate care. It's 100% federal government run and its appalling.

  • Col Sanders||

    Government is CAUSING health care costs to skyrocket because of their own monopoly controls and forced cost-shifting.

    Until these are eliminated, there can be no resolution of this problem.

  • ||

    Krugman had been dancing on the edge for some time now. But I think now he has fallen from the cliffs of insanity. The man clearly has become a stranger to reason. Won't somebody get him some help?

  • ||

    But don’t tell Paul Krugman. He’s still got more spittle:

    That turd burglar always has more spittle.

  • Mike Laursen||

    ...the evidence says that public systems like Medicare and Medicaid, which have less bureaucracy than private insurers (if you can’t believe this, you’ve never had to deal with an insurance company)...

    Now we know that he has never had an real-life interaction with Medicaid.

  • OldMexican||

    Still, wouldn't private insurers reduce costs through the magic of the marketplace?


    Once you bring back the marketplace, we'll see. Right now, medical care is one of the most regulated markets in the US with several imposed restrictions on trade and price discovery, hardly an example of a "marketplace."

    [...]and greater bargaining power, are better than the private sector at controlling costs.


    "A planet where government monopolies are better at bargaining than the private sector?"

    By the way, what Paul Krugman calls "bargaining," we in the real world call it "stiffing." The government does lower some costs by stiffing the suppliers, one reason why increasingly more doctors are not accepting new Medicare customers.

  • JD the elder||

    Speaking of one of the most regulated markets and government meddling, that reminds me of something I ran across.

    I collect old magazines (mid-20th century), and I was interested to note that you often run across ads for private health insurance, which suggests that people were already doing something about the issue before the state got involved. Doing a little research, I found this essay:
    http://eh.net/encyclopedia/art......health.us

    These things just make my jaw drop:

    The AHA designed the Blue Cross guidelines so as to reduce price competition among hospitals. Prepayment plans seeking the Blue Cross designation had to provide subscribers with free choice of physician and hospital, a requirement that eliminated single-hospital plans from consideration. Blue Cross plans also benefited from special state-level enabling legislation allowing them to act as non-profit corporations, to enjoy tax-exempt status, and to be free from the usual insurance regulations.

    So yeah, immense government meddling almost from the beginning. And fuck the AHA, too.

  • Mensan||

    Krugman is full of shit, you say? What's that? Krugman is always full of shit? [sarc] I'm shocked and astonished at this revelation! [/sarc]

  • geo1113||

    Aaron Green (to Paul Krugman): My dad likes your shit.

  • Aresen||

    Off topic, but something else for fans of bureaucratic stupidity:

    A teacher in Edmonton, Canada may be fired for giving out zeros.

    http://www.ctvnews.ca/canada/h.....r-1.937451

  • Night Elf Mohawk||

    They say unfinished work should be treated as a behavioural problem, not an academic one.

    How about unfinished studying?

  • OldMexican||

    They say unfinished work should be treated as a behavioural problem, not an academic one.


    "Resistance is futile!"

  • Auric Demonocles||

    They say unfinished work should be treated as a behavioural problem, not an academic one.

    It's preparing them for work as police officers.

  • Paul.||

    Jesus, Krugman's argument is almost too stupide to respond to.

    Does he mean the private insurers which have to adhere to a massive tangle of government mandates, regulations, rules, price controls and market manipulations?

    God he's some seriously weapons-grade stupid.

  • Scott @ Engage America||

    How can Medicare be better at cost control when it is constantly running out of money? The 2012 Trustee's Report reports the exhaustion of Medicare's trust fund in 2024 (http://1.usa.gov/Kg5KuF).

  • SugarFree||

    It's Raining Men! Hallelujah! - It's Raining Men! Amen!
    I'm gonna go out to run and let myself get
    Absolutely soaking wet!
    It's Raining Men! Hallelujah!
    It's Raining Men! Every Specimen!
    Tall, blonde, dark and lean
    Rough and tough and strong and mean

  • ||

    His cat will be jealous.

  • Adam330||

    "Medicare and Medicaid... have less bureaucracy than private insurers"

    How could this possibly be? The private insurance companies ARE the Medicare and Medicaid bureaucracy. Medicare is run by Medicare Administrative Contractors, which are all large insurance companies. Most states do Medicaid the same way. Here's the list of MACs: http://www.entnet.org/Practice/MAC-websites.cfm. You'll probably recognize names like Cigna and Highmark. The rest are subs of major companies, especially the Blue Crosses. CMS only has about 4,000 employees itself. If CMS had come up with up some magically efficient way of streamlining bureaucracy and implemented it through the MACs, don't you think the MACs would then use that for the private insurance businesses?

  • cw||

    If the government doesn't control every resource in a market, then progressives like Krugman claim that market is "free." Therefore, they can claim the "private" sector failed. Funny how they can arrive at an answer with only a partial equation.

  • Sevo||

    Sort of OT:
    Robert Reich thinks what will make the economy hum is longer vacations!
    (he said it, I didn't)
    "Vacations lift employees, workplace, economy"
    http://www.sfgate.com/default/.....826004.php

  • VG Zaytsev||

    Sure, why not.

    If you already believe that destroying property is the path to wealth then it makes sense that not working means more work.

  • DaveAnthony||

    How can private insurers control cost when the federal government sets the price floor for what health care providers can charge? If they try and charge private insurers less, they are "discriminating" against medicare and medicaid customers.

    On top of that, medicare and medicaid refuse to pay the full cost and only pay a fraction on each dollar charged to them -- so health care providers then just charge private insurers more to make up the lost income!

    The government sets private markets up for failure and then we claim "look, private markets have failed!"

  • cw||

    All, and I mean all, the evidence [...].

    Is Krugman going full retard?

    Seriously, what a hack.

  • Mumu Bobby||

    I'm pritty sure that you can lower costs bye just reducing re-embursiment rates/aka prise? Like Charlie Sheen we can allbe WINNING!!@!

  • Carly EngageAmerica||

    A Health Affairs study (http://bit.ly/MIzYve) showed that the full implementation of the health care reform law and an aging population will result in a significant increase in spending. According to the study, spending will jump 7.4% in 2014 when the health care law is scheduled to be fully implemented. This is partially due to the aging of the baby boomer population, which will result in greater consumption of expensive health care services and products.
    Also, the health care reform law will allow millions of Americans to gain coverage through subsidized insurance plans purchased through government-run exchanges, augmenting consumption.
    By 2021, health care spending is projected to be 19.6% of GDP. The government share of the spending also would be greater, at nearly 50%, mostly because of the anticipated growth in Medicare enrollment.

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Video Game Nation: How gaming is making America freer – and more fun.
  • Matt Welch: How the left turned against free speech.
  • Nothing Left to Cut? Congress can’t live within their means.
  • And much more.

SUBSCRIBE

advertisement