TranscriptPAUL KRUGMAN and ROBIN WELLS A public forum at the
Tuesday, May 30, 2006 Sponsored by PAUL KRUGMANYou may remember those horrible few days at the end of August and
the beginning of September when Katrina hit That is
ultimately what the health care debate is about. I’m an economist, a quantitative
guy, I do numbers and all those things economists do, but ultimately this is a
moral issue. Preventable illness, the personal strain, often the financial disaster
that comes with illness, are things that we can handle. We can come to the aid
of our fellow citizens. And every advanced country except the The American public, when asked in the abstract “Do you think there should be universal health insurance covering basic health care?” says “Yes” by a very large margin. But somehow we fail to actually come up with a system that does that. Now, there are a couple of things you might say on the other side that we need to talk about in this country. Isn’t this a question of individual responsibility? Shouldn’t people make their own provisions to ensure that they have health care when they need it? And isn’t trying to ensure that everyone has basic health care just too expensive? The answers are, of course, that it’s actually not possible for most people to guarantee for themselves that they have the health care that they need. That comes to the whole issue of why, in fact, free markets don’t work for health insurance, which I’ll talk about in a moment. The fact that we have a private health insurance system at all is actually a result of complicit government subsidies. It’s a result of a jerry-rigged system that is, in fact, public policy, not individual responsibility, and that system isn’t working at all -- it is coming apart. And as for its being too expensive, there are a lot of reasons to say that it isn’t, but the most obvious one is that every other wealthy country does it, and what’s more, they spend a lot less on health care than we do. There’s a lot of business slander in this country against the British system, but it’s a very cheap system that spends 40 cents for every dollar that we spend. There are other systems, for instance, the French system, which is by most measures better, at the very cutting edge. Yet we spend almost twice as much per person as the French on health care, and we get poorer results. We have a system which is the most expensive in the world, and yet it delivers results that are close to the bottom among the wealthy countries. Why are things so bad? Well, it comes down to the fact that health care is provided here primarily by insurance. [And health insurance is a market that…The reason health care has to be provided by insurance, by the way this is something that people] I know that it really bothers conservative economists who don’t like the idea that the system so depends on insurance. They would like to sell health care the way we sell bread, but it doesn’t work that way. Health expenses in a given year tend to be very small for most people. Most people are healthy, but when they become ill, the costs are enormous. I have talked to a couple of people who actually pay for all their health care in cash, who don’t worry about insurance. All of them have a net worth of more than a hundred million dollars. The fact of the matter is that, when serious health care costs arrive, they are very large, too large for even millionaires. That’s the nature of medicine: if you are healthy, it doesn’t cost anything; if you are sick, it costs a lot. As we know, in any particular year, 20% of the people account for 80% of health care costs, 1% of the people account for more than 20% of the health care costs. And you don’t know if it’s going to hit you so, you have to have insurance so you can have access to what modern medicine can do. If everyone was completely unaware of how likely they were to need expensive medical care, then perhaps you could have a system where everyone would pay the same amount. Unfortunately, you don’t know if you’re going to need expensive care, but you do know a little bit, and that undermines the system. Just imagine an insurance company that tried to offer a one-size-fits-all policy, a flat fee, no medical exam necessary, no questions asked about whether you have a pre-existing condition. You just pay X dollars, and we’ll cover you. If an insurance company offered
that policy and set the premium to cover the average costs of people in the To the extent that private insurance works, they’ve dealt with this problem in two ways. One is that the insurance companies expend a lot of resources trying to identify people who really need health insurance, and then not giving it to them. They spend enormous amounts of resources screening out where it might be expensive. Aside from the fact that this means the very people who most need care don’t get it, it also means that there’s a huge expense involved. One thing that has been consistent is that the administrative costs of such a system are high. (One of the weird things about the ideological environment in which we live, that that we’ve been trained to believe that government is a bureaucratic organization with lots of people pushing paper around, but it turns out, when you do have government provision health insurance, the bureaucracy has been quite small, the costs are quite small, and it’s the private insurance industry that has enormous bureaucracy and enormous costs, and has a lot of people pushing paper around, and so on.) The other way that private insurance works -- and the reason we’ve managed to stagger along in our health care system until just about now -- is that we have employer-based insurance. There’s a long story about how that came into existence, having a lot to do with the existence of wage and price controls during World War II, but what really sustains it is the tax benefits it provides. To the extent that your employer provides insurance and pays the premium, that is a form of non-taxable compensation. It never shows up in your private income tax. Further, employers, particularly large employers, are to a certain extent able to do what private insurance companies by themselves cannot, which is to create large representative groups of people. And so we’ve staggered along for the past 60 years with a system under which most people under the age of 65 get health insurance through their employers, but it is an enormously expensive system. If you actually try to go through the reasons why the US spends far more than everybody else and yet leaves a large part of the population uninsured, it comes down to the inefficiencies of private insurance. There are some other factors, but a very large part of it is the enormous cost of the use of private insurance companies. With Medicare, about 98 cents of every dollar paid in payroll taxes gets spent on actually providing health care. When you look at the private insurance companies, it is more like 80 cents; the rest goes to administrative expenses and profits. And there are many additional costs imposed on the doctors and health care providers themselves, who have to deal with a fragmented, complex system in which they have to negotiate, amend, or cajole payment from many different insurers. Again it comes down to a system where everyone is trying to get somebody else to pay, and the process is simply shifting that payment around, and so the end result is that we spend a great deal and actually get less health care. My Princeton colleague, Uwe Reinhardt, has done a lot of work on this, showing that the United States spends far more on health care than other advanced countries, but if you look at things like the number of physicians, of nurses, of hospitals beds, even at this point of advanced technology like MRIs, the United States has no more and sometimes less than other countries. There are other costs created by the system we have. It is definitely a drag on the economy, definitely bad for business. Just a little point there are two different stories. Most large employers do provide health insurance to their employees, although there seems to be a gradual shift toward employees paying a greater portion of it. But most large employers do still provide coverage and, for that reason, they have high costs. If you just look at the auto companies,
there are a lot of reasons why they’re in trouble, but one of them is that their
competitors overseas are not spending great sums providing health care for their
workers. It’s an interesting point that General Motors is an enthusiastic supporter
of single payer health care -- in For small employers, many don’t provide health insurance, but that too is a big disadvantage. It means that they are unable to compete for workers. A lot of people who might prefer to work for a small business stick to a large business because it’s the one that provides health care. And it goes beyond that. A lot of people are stuck in their jobs, afraid to lose their health insurance. People don’t change jobs or occupations when they should. There have even been some reports of people who are stuck in their marriages or end up marrying the wrong person. There are really a lot of people held hostage by the desperate need to provide health insurance in this society, which does not guarantee it. Now consider single payer.
In a way, this is a problem with words, because it’s not a term that sounds like
something you do in It’s that bugaboo of big government. I’ll come back to that in just a bit. But of course that’s largely an illusion. We’re very much the prisoners of history here. Harry Truman looked like he was going to create National Health Insurance back in the 1940’s. It came pretty close. It was torpedoed by an unholy alliance between the American Medical Association and southern politicians who didn’t want to see hospitals integrated. If it had succeeded in getting through, it would be regarded as something as American as apple pie. We would find it inconceivable that we would have to go back to private insurance. But that opportunity, and several other opportunities were missed. And one of the nasty consequences of that is that powerful interest groups have been created who stand opposed. The insurance industry was not a big deal 60 years ago; now it’s an enormous force. The drug industry was not what it is now, even 30 years ago, but now it’s an enormous force, standing against any sort of national system that might be able to bargain over drug prices. So there are powerful interest groups opposed. There ought to be powerful interest groups in favor of a national health insurance system, and the most obvious one would be business. One of the political economy mysteries is why we don’t hear more from those companies that do provide health insurance for their workers and are in fact hurt by it. You can read the editorials, the op-ed articles written by the CEO of General Motors quite recently about the enormous burden that our health insurance system imposes on his company. And you say the next paragraph is going to be “We need a national solution”, and that paragraph is never there. It always veers off. One speculates on how much of that is just personal, a fear he wouldn’t be able to show his face at the country club afterwards. Is it that the company has other interests and is afraid to go this strongly against the doctrine of a majority Congress and Administration, to whom these ideas are anathema. But
we still have to mobilize those forces, and I would like to believe that we will
eventually get to a point where the business community says “Hey, this is actually
good for business, too, and we need it.” I worry a bit that, instead, what we’ll
see is the Wal-Martization of corporate Still, there is momentum building for deep reform, and the reasons for that building momentum are simply that this jerryrigged system that we have is breaking down. The cost keeps increasing, not because of inflation so much, but because of medical progress allows us to spend more on improving health care, but this means the cost of health insurance keeps on rising. It’s
finally reached the point where tax incentives for employer-based coverage will
no longer work. And health insurance for those under 65 is simply becoming too
costly. The obvious answer is single payer, or, as PNHP now says, Medicare for
All. Because this is a very amazing thing. If you ask the Even though Medicare for All is a slogan that is a lot easier for people to digest, we should recognize that Medicare itself was originally not a sure thing, but now, of course, it’s an enormously popular program. It’s hard to imagine our country without it. But there have been real problems extending it. What’s happening right now is there is a movement to provide some approximation
to universal coverage but through a kind of complex method that doesn’t displace
the role of the private insurance companies. The most dramatic example is the
The positive thing about a plan like that is that it will cover most of those that are uninsured. And that is, after all, ultimately the moral issue for our fellow citizens. The downside is that the plans adds additional costs to the system as it now exists -- greatly simplified, the plan requires that all individuals purchase private health insurance -- and it taxes higher-income people so that they subsidize the purchase of private insurance by lower-income people. Thus the idea is to get everybody insurance, but through private insurance companies -- it’s going to be universal, but everyone must buy it. The State will provide financial aid to those that can’t afford it. The advantage is that those that don’t now have insurance will get it. The disadvantage is that they have failed to address the vast inefficiencies in our current system. I think we could support that as an interim step, as a way to start, provided that we need to still move toward conversion to a full single payer system. I understand that you can’t produce that at the state level, but if we get anything like that at the national level, it must include an ability for people to simply say they want the single payer option -- you have to give them the option. And I say that knowing with certainty that, if it’s fair competition, the public sector will win. I have never seen a single study in which the private sector wasn’t substantially less efficient in the provision of health insurance than the public sector. The great danger in all of this is that, given the political climate, politicians responding to interest groups will try to prevent any fair competition in the name of protecting the private sector. Let me tell you briefly about Medicare Part D. There is actually a Medicare Part C, which is the Medicare Advantage program in which, instead of taking direct standard Medicare, you go to an HMO and Medicare the HMO. It’s a long story, but the actual situation is that every time they have tried, the HMOs have proven unable to compete on cost. And, of course, what actually happened in Congress is that, given clear evidence that this privatization doesn’t work, Congress subsidized the private insurers in order to maintain the private sector, making it more expensive for the public sector. Now, Medicare Part D, the drug program could have been run with consumer choice, either you go with an insurance company’s drug plan, or you simply get drug insurance directly from Medicare. And you know what would have happened: the drug insurance burden for Medicare would have been less and would have avoided the administrative costs. So Congress solved that problem by not making it possible for seniors to go to Medicare directly; they set it up so that you can only go through the private sector. I am afraid that the odds are it will be easier to get some kind of jerry-rigged complex solution than it would be to get a straight simple program. I’m not sure whether I would oppose that, but it’s clear that this would be a more complicated and costly solution. What we should really do is have Medicare for All, H.R. 676. That’s the way to do it. And the fact of the matter is it happens to be an economic winner. Almost nobody would end up paying more. The premiums you now pay, or that your employer now pays, would be paid instead with a payroll tax, and you would end up getting more health care for less money. And it would resolve the great injustice in our current system in which a large number of people don’t have health care simply because they fall through the cracks in the system. I want, in the end, to come back to this: This is a vast moral issue that we can solve. It turns out that we can do this not just for free, but for negative costs. All the evidence says that you could cover everyone, could guarantee health care for everyone, and actually save money in the process. But even if that weren’t true, we still should do it. Ultimately this is a moral issue. We are a society, we are a community, and we shouldn’t allow our fellow citizens to go bankrupt, suffer ill health, or die, simply because we are unable to overcome the political barriers to a simple efficient system. ROBIN WELLSLike Paul, I was trained as an economist, and like him, I became convinced by models, by numbers, by analysis, that the current system we have in health care is fundamentally wasteful, it’s wrong, it’s harmful, and that’s why I wanted, for a very long time, to write this article that the New York Review of Books has been so kind as to publish. But I also wanted to say that there is a larger issue in which I think the health care crisis is embedded. Paul and I have been in the trenches now, literally speaking, since about 1999, when Paul started working as a commentator. And what we’ve seen over that period of time is really that this is a country that has lost its way. This issue crystallizes so much of what has gone wrong, the deification of markets, the masquerading of what is really corporate interest for what is purported to be the public welfare. It is getting to the point where we feel as if people have lost hope for doing anything better. So we really wanted to bring this issue to the forefront, because it is one where we think that, at the grassroots, there can be hope that something can be done and can be made better. Thank you. Paul Krugman - From the Q&AOn state level efforts for reform: I support
efforts to achieve reform of the system at the state level. However, I recognize
also the real limitations that states will have. States are pretty open, and there
is a real issue of an individual state being able to compete with other states
if it raises taxes to pay for health care. But I have studied the history of the
New Deal, and much of the progressive movement which it represented began in the
states, especially in On
On fighting the insurance companies: There is a lot of public anger building against the insurance companies and the drug companies. The fact that these powerful interests are opposed to a broad insurance plan might, at some point, turn into a political advantage. On why business isn’t yet on board: Business is scared about the health care issue. This is a terrain – having government take over health care financing in order for them to survive – that is very different from the lower-tax regime they’ve been pushing for many years. Why can’t American business act in its own interest? Business has, in many ways, gotten what it has asked for – lower taxes and smaller government – but that isn’t what it has really needed. So it has to make a major turn-around, and it just hasn’t done it yet. On where political change will come from: There is a big difference between just trying to cover the uninsured, and trying to get to a rational system. Even many of the policy intellectuals and think tanks are desperately afraid that it might be politically too hard to do. They are timid, and so they come up with complicated, confusing, and limited plans, even when they share my values on and my diagnosis. This makes me think that we will get there either through a bad plan that somehow greases the rails toward universal health care, or there will come a point where the national distress leads to a popular tidal wave. I believe this will come, not from Congress or the progressive think tanks, which are infuriatingly cautious on this issue, but, if it’s going to come, it will have to come from an aroused public. So I applaud those of you who are working actively to rouse the public on this issue. On Skinny Plans and Incrementalism: Oliver
Fein: We in PNHP are very worried about the Massachusetts Plan, especially
the individual mandate, because we think it will result in stripped down or “skinny”
insurance policies. We looked around to see if we could find such a policy. Paul Krugman: This whole ideology of property
rights and individual responsibility, which has led in Billie Spaight:I’d like to comment on those stripped-down
plans. Right now I have excellent coverage under my husband’s plan. But already
we are spending $500 a month on medications. If I had one of those plans where
I had to pay $600 or more additional every month, or if I lived in Paul Krugman: There are going to be these state-level initiatives and maybe one way to view this is to make sure that the spin wars are won by the right people." |