We All Agree
That our health care system is terrible, but what’s the solution?
Paul Krugman is out with a blog post titled “Health Systems and Health Costs”
From this graph, he argues that the Canadian system, which has risen in spending considerably less than that of the US system, should therefore be adopted in the US:
So, Canada has a single-payer insurance system — actually called Medicare. Four decades ago, Canada spent about the same share of GDP on health care as we did. Since then, however, Canadian spending has risen far more slowly than spending in the US, which relies much more on private insurance. Meanwhile, despite the scare stories opponents of reform like to tell, Canadian health care appears on average to be as good as or better than US care; polls indicate that Canadians are more satisfied with their health care than Americans.
He then states that ironically, Republicans are arguing to get rid of the single-payer part of the system to keep costs down, while it’s obvious Canada demonstrates that the exact opposite route is the best way to keep prices down.
What Krugman’s simplistic analysis fails to take account of, in terms of empirical evidence, is the data pre-1970s.
As this chart shows, health care spending/GDP in the US rises slowly in the early to mid 20th century, then accelerates drastically after 1960.
This is basically the same graph but here the prices of health care (the title is incorrect by the way; it’s supposed to say “CPI All Items v. Medical Care”) in the US are compared with the prices of all items. As the graph shows, medical care expenses are rising with other expenses up till around 1970 and then take off, diverging by a large amount from other goods in general.
I would love to find Canadian health care costs pre-1970 to compare it to costs in the US but was unable to. After all, 1965 was when Medicare was enacted and 1973 is when the HMO Act of 1973 was passed, so it’s obviously illogical to criticize those who want to move toward a free market in health care based on data after 1970 (if we are so gracious to accept that this is what the GOP actually desires).
Let me restate Krugman’s logic to show exactly where I take issue with his argument. Krugman points out that Canadian healthcare spending/GDP post-1970 is lower than US healthcare spending/GDP post-1970 (and the gap has expanded ever since). Therefore, the Canadian healthcare system is more desirable than the US healthcare system post-1970. And because the Canadian system is a single payer system while the US system is a mix of single payer and private insurance, pure single payer leads to cheaper prices than mixes of single payer and private insurance, and pure single payer leads to cheaper prices than pure private insurance.
This last part is where he goes wrong. We could be extremely critical and even point out that correlation isn’t causality, maybe there are quality concerns, etc., but let’s grant those propositions for now. The non-sequitur he commits is when he goes from the fact that there are cheaper prices in pure single-payer than in the mixed system to the conclusion that therefore there would be cheaper prices in pure single-payer than in a pure-private system.
Sure, prima facie it might seem that his final conclusion would follow, but couldn’t it very well be that both pure single-payer and pure private systems have cheaper prices than a mixed system? As the historical data shows, prices in the US exploded upon its aberration from the free market, so if we take all the data into account, wouldn’t it actually seem reasonable that both pure systems had cheaper prices than a mixed system? You see, in proving that a pure single-payer system has cheaper prices than a mixed (single-payer + private) system, Krugman proves this and this only. It does not follow that a pure single-payer system has cheaper prices than a pure private system, and if Krugman wanted to legitimately prove this, he would have to show data before the US system became extremely interventionist.
Of course, this leaves us to reason why both systems have cheaper prices than a mixed system, but that seems relatively easy to solve. The US health care system is fueled by a credit bubble created through artificially lower interest rates (because of Federal Reserve policy) that makes borrowing easier for the US. A lot of this borrowed money is funneled into health care through programs such as Medicare. The US also has a lot of regulations on insurance companies mandating them to insure “preventative” measures such as regular doctor visits, that cause prices to go up since people don’t have to pay the full price and will visit more often. These regulations and artificially low interest rates would not be present on the free market and thus prices would be lower. The US also borrows to an extent Canada is unable to borrow because of the dollar’s status as the world reserve currency, and so it is not surprising that Canada’s prices are lower. Canada’s health care system has effective price controls (another cause of lower prices) but its people are allowed to visit the doctor as much as they want, hence the longer waiting lines in Canada.
I’ll likely revisit this issue in the future and include more information explaining how the Canadian system has and a private system would have lower costs than those of the current system in the United States.