Friday, May 16, 2014

Paul Krugman on Free Market Health Care (Again)

I understand that Paul Krugman is a great economist. He has won a Nobel Prize. But, when he talks about issues like health care, he is surprisingly inept. Recently, he made a post about market based health care.

As usual, Krugman makes out Kenneth Arrow's work as having ended the discussion on the ability for markets to work in health care. I don't know why. There are a lot of markets with asymmetric information where markets still work just fine. There are lots of markets where people "need" the product (like food) where markets work fine too.

Still, my biggest problem with Krugman's post is his assertion that markets have a record of failure in health care. Reader's may recall this post from a while back where I explained this wasn't so:

"I can think of a few real world examples of more or less free market (or consumer based) health care:

1.) In the USA, cosmetic type surgeries like Lasik Eye Surgery (look here). Results seem to be fairly positive.

2.) Abroad, Singapore and, to a lesser extent, Switzerland use significant amounts of cost sharing. These systems aren't exactly "market oriented", but consumers have a lot of "skin in the game" compared to other systems (including our own system). The results (here and here). On the whole, results here seem to be fairly positive as well."


I'll be the first to admit that, in the modern world, the experience with market based health care is limited. But, this experience has been unambiguously positive. One more thing from Krugman:

"
That’s us in the upper right-hand corner: our uniquely privatized system is uniquely expensive, while overall indicators of the quality of care don’t point to any US superiority. So on the face of it, the evidence strongly suggests that the proposition that health is an area where private markets work badly is borne out by experience."
This is frustrating on two counts. First, this actually illustrates a point that defenders of private medicine often make: the only evidence that private medicine leads to higher costs is the USA. Indeed, if you take out the USA (an outlier), there is no correlation between private share of health spending and overall cost.
What else is annoying?

If you included Singapore in this chart, you would see another outlier. After all, Singapore has something like 60% of health care spending private. That would be far higher than every other country on this chart, USA included. Furthermore, their health care only takes up about 3% of GDP, far lower than every other country on the chart.
Overall, we should expect more of Krugman than a post that ignores so much contrary evidence and engages in cherry picking in data. But, unfortunately, this is the kind of thing I have come to expect from Krugman.

UPDATE: For those people who argue that Singapore's system is not market oriented, I direct you here.
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