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.