Paul Krugman writes:
The basic facts on health care are clear: government-run insurance is more efficient than private insurance…
I believe that to be false (more on that later). He continues:
…more generally, the United States, with the most privatized health care in the advanced world, has a wildly inefficient system that costs far more than anyone else’s, yet delivers no better and arguably worse medical care than European systems.
But all of this runs so counter to libertarian assumptions about the superiority of individual choice and market mechanisms that they just can’t take it on board. So we have bald assertions that Europeans receive much less care than Americans, even though the data clearly show that it just ain’t so. And we have assertions that mean-testing Medicare is the answer to our problems.
The link that Krugman provides to justify that these claims “just ain’t so” is an article by Gerard F. Anderson, Uwe E. Reinhardt, Peter S. Hussey and Varduhi Petrosyan from the journal Health Affairs. The paper essentially shows that Europeans obtain the same quantity of services as those in the United States and therefore the difference in spending must be made up by the prices. Here is there conclusion:
In 2000 the United States spent considerably more on health care than any other country, whether measured per capita or as a percentage of GDP. At the same time, most measures of aggregate utilization such as physician visits per capita and hospital days per capita were below the OECD median. Since spending is a product of both the goods and services used and their prices, this implies that much higher prices are paid in the United States than in other countries. But U.S. policymakers need to reflect on what Americans are getting for their greater health spending. They could conclude: It’s the prices, stupid.
The problem with this analysis is that it lacks any measure of quality. The authors acknowledge that this is a problem while pointing out that it is hard to determine the correct measures of quality. However, without such measures, saying that Americans are paying higher prices is an incomplete and, perhaps, a misleading statement. The conclusion that Krugman seems to draw from this paper is that if Americans are paying higher prices for the services, then prices are the problem and a government insurance system could surely lower them. It is possible, however, that the differences in prices are explained by differences in quality. If Americans are paying higher prices for the same number of treatments, the higher price may reflect a quality premium. In which case, reducing the price through government intervention would lead to reductions in quality of service.
This gets us back to my original comment that Krugman is simply not correct to say that government-run systems are more efficient. For example, rather than look at cross-country analysis, let’s begin by analyzing things at home. For example, Medicare Part B forces doctors to choose to accept patients on assignment or not. The doctor’s choice plays a key role in the payment they receive. By accepting assignment, they agree to accept Medicare’s approved rate for services. However, if the doctor chooses not to accept assignment, they can bill the patient for an amount above the Medicare approved rate and Medicare will reimburse the patient for the approved rate minus the 20% co-payment (a process known as balance billing). The process of balance billing essentially allows the doctor to price discriminate. However, the federal government adopted balance billing restrictions of 115% of the approved rate and many states have subsequently adopted balance billing restrictions of their own. A fellow Ph.D. student here at Wayne State is currently writing his dissertation (sorry, it is not yet available online) on the effect of balance billing restrictions on the quality of care. I have been fortunate enough to read a draft of the paper, which provides overwhelming evidence (and the most comprehensive evidence to date) that these restrictions have led to uniform reductions in quality (across a broad spectrum of quality measures). Thus Krugman’s assertion that government-run health care systems are more efficient seems to be quite erroneous.
