Good Government Health Care Not Actually So Good

In today's column, Paul Krugman says that "government involvement is the only reason our system works at all." He writes:

The key thing you need to know about health care is that it depends crucially on insurance. You don't know when or whether you'll need treatment — but if you do, treatment can be extremely expensive, well beyond what most people can pay out of pocket.

…So here's the bottom line: if you currently have decent health insurance, thank the government.

The current insurance model is far from perfect—it insulates consumers from costs. Thus, patients typically don't know—and don't have any incentive to know—the price of medical care, and the market incentives that ought to tie spending to quality care end up distorted. Yet the private insurance market is not solely to blame for the country's care problems, and some of the problems the insurance market has can be traced back to government. Contrary to what Krugman argues, the government's involvement has made health insurance more expensive, and more cumbersome, and more wasteful.

One of the biggest problems with our current health-care system—that insurance is tied to employment—is a product of government intervention. Princeton economics professor Uwe Reinhardt explains:

At the time it was thought that, as the nation's drafted military personnel risked their limbs and life on foreign battlefields at low, tightly controlled pay, those who stayed behind should have their wages controlled as well.

But with the wink of the eye with which Congress routinely puts loopholes into the tax laws or regulations it imposes, the wage controls imposed in World War II did not extend to fringe benefits. And thus, employer-paid fringe benefits, including employment-based health insurance, were born.

Nearly every reputable health-policy analyst agrees that excluding employer-provided health benefits is a bad idea—a massive market distortion that makes insurance less portable and more expensive. It's one of the biggest structural problems in the health insurance market. And it's a product of poor government policy.

Meanwhile, government-run health insurance programs like Medicare are, as Krugman notes later, quite popular. But they're not trouble-free. Far from it.

Medicare is rife with waste, fraud, and abuse, which has helped send its costs spiraling out of control. Controlling costs within government-managed health-care programs has proven nearly impossible. The recent Massachusetts initiative to provide universal health insurance to the state's residents has seen massive cost overruns. At the federal level, the Congressional Budget Office recently reported that spending growth on the government's two biggest health entitlements, Medicare and Medicaid, is the chief factor in putting our federal budget on an "unsustainable" path that has the potential to "cause substantial harm to the economy." Indeed, the potential for massive budgetary problems is a large part of the reason why Congress claims it's attempting to overhaul the health-care system.

Krugman would have his readers believe that, in health-care, government is the only good actor. But the evidence suggests otherwise. Thank the government? No thanks.

Shikha Dalmia wrote about the myth of free-market health care in America here. Read Reason's health-care archive here.