Tuesday, December 4, 2012

One Size Fits All "Cost Reduction"

When I recently spoke at a college in Michigan, I met a couple of women from Canada who told me that whenever they need serious medical care, they come across the border to the USA. In fact, they said there are clinics in this country that specialize in treating Canadians who either are denied care in their own country or must wait in long lines.

The reason is simple: in the name of "controlling costs," the Canadian government through its "single-payer" plan simply withholds care through a "one-size-fits-all" system -- and that is what Paul Krugman claims we need to do here. (When he confidently asked an audience of Canadians if they believed they had a great system, he got responses that truly puzzled him, and certainly were not what he expected.)

(After the speech, a woman in the audience whose husband is a doctor told me that her husband spends about six hours a day doing paperwork in order to satisfy the government requirements. Please explain to me how this is any kind of positive change, especially considering that ObamaCare is going to pile on even more bureaucratic procedures into medical care.)

In a recent post, he claims that the way to get budget savings is for the government to withhold care. He doesn't put it that way, of course. Only a Keynesian and fellow-traveling statist could believe that when governments pile administrative procedures in medical care, such actions actually reduce real costs.

Like most statists, Krugman believes that costs are administrative numbers and the way that one reduces real costs is simply to order them to fall. So we get things like:
And the truth is that we know a lot about how to do that — after all, every other advanced country has much lower health costs than we do, and even within the US, the VHA and even Medicaid are much better at controlling costs than Medicare, and even more so relative to private insurance.

The key is having a health insurance system that can say no — no, we won’t pay premium prices for drugs that are little if any better, we won’t pay for medical procedures that yield little or no benefit.
Sorry, but this isn't economics. It is babble. Krugman really does believe that markets behave exactly like bureaucracies, and that one can substitute bureaucracy for market exchanges and actually get superior results.

Every "market" in which government involves itself with massive "oversight" or outright running things is going to have increasing real costs, as careerist bureaucrats find ways to pile on procedures and paperwork. However, in American medical care, we often find that those procedures that neither are covered by insurance or government payments are marked by falling prices. Yes, why is it that things like lasik surgery have been becoming increasingly affordable despite the lack of third-party payments? (Or, maybe I should add that it is because of the lack of third-party payments.)

Like all good Keynesians, Krugman believes that markets over time drive up real costs, and the only way to make things affordable is for government to order costs to fall. That is not the real record of capitalism, of course, but Keynesians ignore that hard fact. Instead, they want us to believe that if government just could provide everything administratively, that we would be able to live in splendor and wealth. Just like they did in the U.S.S.R. WHERE THEY HAD FREE HEALTHCARE!


Dennis said...

One major reason why medical care costs are lower in Canada, and would still be lower if we had a free market in medical care, is because Canada does not have the same tort law system that America does. Canadian courts will only award damages for tangible, identifiable harm, not for pain and suffering. If you lose a civil suit in Canada, you can be awarded court costs on the spot, which acts as a brake on frivolous lawsuits. Also, civil suits are decided by a judge, not a jury.

Excessive paperwork gets churned out by American hospitals and patients get all sorts of unnecessary tests not in order to protect the patient's health, but in order to avoid being sued.

Mike said...

thought this might be of interest


ALima said...

How do you know medical care costs are lower in Canada?
The two systems are different enough to make comparisons difficult.
For the patient at the doctors office-sure they pay nothing except time.

Caustic Pop said...

The great Thomas Sowell summed it up succinctly:

“It is amazing that people who think we cannot afford to pay for doctors, hospitals, and medication somehow think that we can afford to pay for doctors, hospitals, medication and a government bureaucracy to administer “universal health care.”

Anonymous said...

I think it comes down to this... Ask how many Northern Europeans would like to trade their health care systems with the American one and vice-versa... Being in Europe I have my own opinion....

William L. Anderson said...

I am not defending the current American system with all of its third-party payments. Indeed, I would like to see a free-market system in which I believe we would see the combination of entrepreneurship and medical care working very nicely together.

Modern American medical care is a combination of the Flexner Report and third-party payments, all of which guarantee higher costs.

William L. Anderson said...

This, of course, is the other side to the "paradise" of state-sponsored medical care:


Anonymous said...

That is indeed the dark side of the cold cost/benefit analysis that is done in pretty much all human activities, and it's always ghastly, like the math cancer patients may have to make regarding outstanding debts for their families...

But how would a market system be any different regarding this issues? It certainly would be more efficient, but more humane, in this kind of visceral, emotional way? (which is what you are talking about here)...

In any case (and this detail for some reason is absent from most discussions of health care in the US) patients are entirely free to purchase healthcare services from private providers in pretty much all countries in Europe and there is, in fact, a vibrant private health care market here...

To clarify my position, I agree entirely with you that a purely free, direct consumer-producer market would be the best possible system, I just believe health care joins law enforcement and national defense in the reduced list of activities where, due to their idiosyncrasies, it is hard to establish a fully functioning free market in such a way that the "market efficient" outcome matches roughly the "socially efficient" outcome that we associante with most other human activities in a capitalist society..

Lord Keynes said...

"When I recently spoke at a college in Michigan, I met a couple of women from Canada who told me that whenever they need serious medical care, they come across the border to the USA.

That's a myth, a utter myth. The vast majority do not come to the US at all: 99.39% of Canadians do not use the US system.

Those who use the US for care electively: just 0.5%.



So much for your nonsense. Presumably in your world, some random anecdotes - possibly just from fellow free marketeers - constitutes real evidence!

William L. Anderson said...

No, it is not a myth, and I did not make up that one. I would agree that most Canadians don't come over the border for medical care, but then I never made that claim in the first place.

You chose to make the claim that I had made up this thing out of whole cloth. I actually did have that conversation and, LK, doctors really are speaking about the huge administrative workload that the current president is putting on them, with administration being one of those costs of Obamacare.

Don't forget that a lot of people, including Americans, are going to India for medical care because the quality is good and it is much cheaper. A friend of mine had his his replacement done in Mumbai because it was done at a fraction of the cost that would have been the case here.

LK wants us to believe that markets are responsible for high costs of medical care. Paul Krugman claims that new medical capital is what makes medical care more costly. If that were true, it would be the first time in history that markets have been responsible for driving up real costs over time.

Pulverized Concepts said...

This story tells us a lot about the Canadian health care system here

Aside from that, if the increasingly MMT oriented Krugman and Bernanke are right, why not make everyone in the health care industry government employees? Just enpixelate the funds for their paychecks and let everyone have free health care. Don't need no stinking death panels. Everyone can have not only what ever treatment they need but whatever they want. And, in fact, aren't we already quite a ways down the road to this goal even now? And in other spheres as well? Massive subsidies for food production and marketing already exist through fiat money payments and programs like SNAP that involve more and more recipients. Might as well admit that monetary theory as it was once known is history.

Will "take no prisoners" Hart said...

One actuarial had Medicare reimbursements actually falling below those of Medicaid in the not too distant future. 50% of doctors currently don't take Medicaid.......Please, fell free to extrapolate.

Bob Roddis said...

I never thought about this until yesterday.

OBAMACARE IS GOING TO ATTACK GOVERNMENT WORKERS TOO. THIS IS GREAT. CITIES WILL BE SHEDDING WORKERS AND HOURS DURING 2013 WHICH IS THE "LOOKBACK" PERIOD. Obamacare attacks Roseville - - Subway, AutoZone, and Red Lobster aren't the only Michigan employers feeling the pinch of Obamacare. Employees with municipalities are getting squeezed too. Roseville city manager Scott Adkins explains on the Frank Beckmann Show how workers' hours will have to be cut if the city is to survive the Affordable Care Act's unaffordable mandates.