Although Paul Krugman's politics seem to inform his economics (rather than the other way around, as you would expect; that's why I don't usually pay much attention to him), he does raise some interesting points about the cost of health care:
According to the World Health Organization, in the United States administrative expenses eat up about 15 percent of the money paid in premiums to private health insurance companies, but only 4 percent of the budgets of public insurance programsHe goes on to argue that the lower administrative cost is a reason why we should have universal, government-sponsored health care. I don't think his conclusion follows from the facts he brings up, and there are certainly enough problems with government provided health care in other countries to argue against such a system. But he makes a point about competition:
Isn't competition supposed to make the private sector more efficient than the public sector? Well, as the World Health Organization put it in a discussion of Western Europe, private insurers generally don't compete by delivering care at lower cost. Instead, they "compete on the basis of risk selection" - that is, by turning away people who are likely to have high medical bills and by refusing or delaying any payment they can.Is there some way to change the system dynamics so that private companies compete on quality of care at lower cost, rather than on gaming the system by choosing the lowest risk people? There are rules to the game, and the companies are just playing to those rules (i.e., they're "gaming" the system). Change the rules, and you can change the behavior. I'll need to think for a while on ways that might work. Posted by Tom Nugent at April 22, 2005 10:44 AM