Paul Krugman’s Latest Misconception

by Pejman Yousefzadeh on April 23, 2011

Continuing his quest to define all who disagree with him as (a) stupid; (b) venal; or (c) both (a) and (b), Paul Krugman’s latest editorial decries the idea that patients are consumers. Rightfully, this argument attracts a lot of flak. Don Boudreaux:

Krugman here taps into the antediluvian hostility toward bourgeois modes of providing for one’s self and one’s family.  This ancient prejudice holds that ‘mere’ commerce might be acceptable to govern the production and distribution of trifles such as candy and cars, but it’s too crass for goods and services that tradition or elites declare should be untainted by such sordid, competitive activities.

If consumer choice isn’t the ultimate driver of health-care supply, however, what – or who – will be its ultimate driver?  Health-care suppliers?  Congress?  Government bureaucrats?  Princeton dons?

Ben Domenech, in an open letter to Krugman:

. . . According to the U.S. Department of Health and Human Services and the Agency for Healthcare Research and Quality, as much as 75% of health care costs in the United States are due to chronic conditions. Administrative costs alone take up nearly 10% of the national pie chart. As the U.S. population ages, the management of these long-term conditions takes up the overwhelming portion of responsibility for the rising costs of care — according to the Kaiser Family Foundation’s research, the average American over the age of 64 spends vastly more on health care services than any other age group, roughly $9,000 per year — and despite the massive increase in taxpayer subsidies, private health insurance remains the largest source of health spending.

Your incorrect view of the nation’s health care reality is, in fact, one of the chief reasons for problems with the current system, which was originally designed in the 1930s to cover catastrophic events, not chronic conditions, predictable treatments, and long-term care. As a 2009 report in McKinsey Quarterly notes, “The fundamental nature of medical risk in the United States has changed over the past 20 to 30 years — shifting away from random, infrequent, and catastrophic events driven by accidents, genetic predisposition, or contagious disease, and toward behavior- and lifestyle-induced chronic conditions. Treating them, and the serious medical events they commonly induce, now costs more than treating the more random, catastrophic events that health insurance was originally designed to cover.”

Employer-based insurance, which made sense when people had one or two employers in a lifetime, now separates consumers from price signals and eliminates transparency in the marketplace, and results in a situation where people are overinsured for some risks and underinsured for others. America today is burdened with a nonsensical health care system where government-driven incentives warp the decision-making process of individuals, and doctors are expected to work essentially for free.

The small steps taken toward market approaches which allow for expanded individual choices have shown positive results, and progress toward cost-reduction without sacrificing coverage, as individuals make decisions based not on artificial systems constructed by agencies, but on their own priorities and needs. Yet these positive examples were completely ignored under President Obama’s new nationalized health care regime.

Peter Suderman:

Why is Krugman so horrified at the notion that medicine be treated as a “commercial transaction?” Is it because medicine is sometimes needed to live—or to live a happier, healthier, more productive life? Maybe so, but if that’s the case, then why isn’t he worried about the crass commercialism of the grocery store and for-profit food markets? Or does Krugman maintain a special, sacred relationship with his grocer?

I would also be curious to hear how most doctors serving the American public would feel about the idea that medicine shouldn’t be thought of as an economic transaction. Oh sure, it’s a specialized craft and the best docs build relationships with their patients. But I don’t see too many of them working for free.

Here’s what I mean when I talk about medical consumers: Individuals making informed choices about the health services they want—and yes, that also means being informed about their cost. Krugman, of course, thinks this conception of medical markets is terrible because he thinks that when it comes to health care individuals either can’t or shouldn’t make those choices on their own.

Krugman wants us to believe that he’s just following history showing that allowing individuals to act as medical consumers doesn’t work: “‘Consumer-based’ medicine has been a bust everywhere it has been tried,” he writes.

The evidence says otherwise: In a 2009 metastudy of high quality research, consumer-driven health plans that paired health savings accounts with high-deductible plans didn’t simply lower health spending growth, they produced real savings. They even increased the use of preventive care. Last year, a RAND study of consumer plans found similar savings, but without the clear increase in use of preventive care. The classic RAND study of health insurance, almost universally agreed to be the most robust study into how individuals respond to health insurance, found that increasing cost-sharing—i.e., making consumers (there’s that word again!) shoulder a greater share of the expenses and thus giving them an economic stake in the choices made about their medical care—reduced utilization and costs, but “in general had no adverse effects on participant health.” Once again, consumer-driven care gives us: cheaper care, no generalized negative effects on health outcomes, and in some instances, greater utilization of preventive services. That’s what Krugman calls a bust?

There is, of course, no contradiction whatsoever between calling the doctor-patient relationship “sacred,” and also calling it “consumer driven.” Indeed, pointing out that medical care is “consumer driven” emphasizes the power of the patient as the consumer. But leave it to Krugman to miss that very obvious point.

  • Benjamin Domenech

    One slight critique or correction to Suderman’s otherwise intelligent point: he writes, “I don’t see too many of them working for free.” Most doctors will tell you that this is exactly what is expected of them, particularly by the government. The overwhelming bulk of deficit savings derived from Obama’s health care law is in essentially ending the practice of raising reimbursement rates for Medicare and Medicaid services in anything like a market-sensitive fashion. We already have hosts of examples of individuals who’ve died because they could not find a medical professional who accepted Medicaid because of this below-market reimbursement rate — sad stories which have bolstered the efforts of politicians to require all doctors participate in the program. Put it all together, and you understand why people like Krugman would rather not think of the dollars and cents involved in healing the sick.

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