News & Opinion

Health Economics 101

November 14, 2005

New York Times
Op-Ed Columnist

By PAUL KRUGMAN

Several readers have asked me a good question: we rely on free markets to deliver most goods and services, so why shouldn't we do the same thing for health care? Some correspondents were belligerent, others honestly curious. Either way, they deserve an answer.

It comes down to three things: risk, selection and social justice.

First, about risk: in any given year, a small fraction of the population accounts for the bulk of medical expenses. In 2002 a mere 5 percent of Americans incurred almost half of U.S. medical costs. If you find yourself one of the unlucky 5 percent, your medical expenses will be crushing, unless you're very wealthy - or you have good insurance.

But good insurance is hard to come by, because private markets for health insurance suffer from a severe case of the economic problem known as "adverse selection," in which bad risks drive out good.

To understand adverse selection, imagine what would happen if there were only one health insurance company, and everyone was required to buy the same insurance policy. In that case, the insurance company could charge a price reflecting the medical costs of the average American, plus a small extra charge for administrative expenses.

But in the real insurance market, a company that offered such a policy to anyone who wanted it would lose money hand over fist. Healthy people, who don't expect to face high medical bills, would go elsewhere, or go without insurance. Meanwhile, those who bought the policy would be a self-selected group of people likely to have high medical costs. And if the company responded to this selection bias by charging a higher price for insurance, it would drive away even more healthy people.

That's why insurance companies don't offer a standard health insurance policy, available to anyone willing to buy it. Instead, they devote a lot of effort and money to screening applicants, selling insurance only to those considered unlikely to have high costs, while rejecting those with pre-existing conditions or other indicators of high future expenses.

This screening process is the main reason private health insurers spend a much higher share of their revenue on administrative costs than do government insurance programs like Medicare, which doesn't try to screen anyone out. That is, private insurance companies spend large sums not on providing medical care, but on denying insurance to those who need it most.

What happens to those denied coverage? Citizens of advanced countries - the United States included - don't believe that their fellow citizens should be denied essential health care because they can't afford it. And this belief in social justice gets translated into action, however imperfectly. Some of those unable to get private health insurance are covered by Medicaid. Others receive "uncompensated" treatment, which ends up being paid for either by the government or by higher medical bills for the insured. So we have a huge private health care bureaucracy whose main purpose is, in effect, to pass the buck to taxpayers.

At this point some readers may object that I'm painting too dark a picture. After all, most Americans too young to receive Medicare do have private health insurance. So does the free market work better than I've suggested? No: to the extent that we do have a working system of private health insurance, it's the result of huge though hidden subsidies.

Private health insurance in America comes almost entirely in the form of employment-based coverage: insurance provided by corporations as part of their pay packages. The key to this coverage is the fact that compensation in the form of health benefits, as opposed to wages, isn't taxed. One recent study suggests that this tax subsidy may be as large as $190 billion per year. And even with this subsidy, employment-based coverage is in rapid decline.

I'm not an opponent of markets. On the contrary, I've spent a lot of my career defending their virtues. But the fact is that the free market doesn't work for health insurance, and never did. All we ever had was a patchwork, semiprivate system supported by large government subsidies.


That system is now failing. And a rigid belief that markets are always superior to government programs - a belief that ignores basic economics as well as experience - stands in the way of rational thinking about what should replace it.

Links

Wiki Page for 2015 SPAN Annual Conference

Healthcare Is a Human Right
Healthcare-NOW! A national grassroots advocacy organization in support of single-payer health care with a network of activists in 42 states.
Illinois Single-Payer Coalition
Kaiser Family Foundation: State Health Facts
Kentuckians for Single-Payer Health Care
Labor Campaign for Single Payer Healthcare
Maryland Chapter PNHP is a chapter of Physicians for a National Health Program, a nonprofit research and education organization of 16,000 physicians, medical students, and health professionals who support single-payer national health insurance.
Maryland Citizens Health Initiative
Massachusetts Campaign for Single Payer Health Care (MASS-CARE)
MEDICARE for ALL
Minnesota Citizens Organized Acting Together (COACT)
National Nurses United
Our Ailing Health Care
Physicians for a National Health Program (PNHP)
Physicians Working Group Proposal for Single-Payer National Health Insurance
Public Citizen
Single-Minded for Single-Payer: An Interview with Kevin Grumbach
Single-Payer: Answers and Facts About Health Care for All
Single-Payer Action A nonprofit activist-fueled organization based in Washington, D.C.
Single Payer Central
Single Payer New York
Single Payer NOW

SPAN State Council

The following individuals were elected by their respective constituencies to serve on the SPAN State Council for a one-year term ending in April, 2019:

Executive Committee
Deborah Silverstein — SPAN Ohio State Director
Johnathon Ross, M.D.— SPAN Ohio Secretary
Barbara Walden — SPAN Ohio Treasurer
Brad Cotton, M.D. — At Large
Bill Davis — At Large
Marcia Hartman — At Large
Bob Krasen — At Large
Matt Noordsij-Jones, M.D. — At Large
 
Regional Coordinators
Region 1 — Ted Seuss
Region 2 — Dennis Slotnick
Region 3 — Patty Mercer
Region 4 — Dee Chavez, RN
Region 5 — Bob Krasen
Region 6 — Bonny Graham Esparza
Region 7 — Matt Noordsij-Jones, M.D.
 
Labor
Connie Hammond
Kendall Mays
Dave Pavlick, Sr.
 
Health Care Community
Richard A. Bozian
Richard C. Bozian, M.D.
Alice Faryna, M.D.
Pia Kanistros, RN, BSN
Katherine Lambes, M.D.
Joan Matyskella
Melanie Moynan-Smith
Don Rucknagel, M.D., Ph.D.
Kimball Stricklin
Marilyn Webster, RN, MSN
 
Community Organizations
Kathy Guest
Sean Nestor
 
Faith Groups
Bonny Graham Esparza.
Dennis Lambert
 
Other Organizations / Individuals
Quo Vadis Ellison
Marcia Hartman
Diana King
Logan Martinez
Bob Parker
Mark Polley
Arlene Sheak
 
Business Community
Freeda Flynn, M.D.
Tim Kettler
Mayo Makinde
 

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SPAN Contacts

General Information

SPAN Ohio
PO Box 852
Kent, OH 44240
Email: span@spanohio.org  — Voice Mail: 216-736-4766

State Director

Debbie Silverstein
Email: dsilverstein@neo.rr.com — Phone 330-673-8524

REGIONAL COORDINATORS:

Contact the regional coordinator for your county to obtain SPAN material or instructions on how to obtain it, to volunteer to help with the campaign for siingle-payer, or for answers to questions about SPAN Ohio or the single-payer movement in general.

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Region 6 (East Central Ohio)

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Phone: 330-842-9296
(Includes Ashland, Carroll, Columbiana, Holmes, Mahoning, Medina, Portage, Richland, Stark, Summit, Tuscarawas, Trumbull, and Wayne counties)

Region 7 (West Central Ohio)

Matt Noordsij-Jones
mattnj78@gmail.com
Phone: 937-321-8698
(Includes Champaign, Clark, Darke, Greene, Miami, Montgomery, Preble, and Shelby counties)

SPAN Ohio 9th Annual Conference

REGISTER TODAY!
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Ramada Plaza Hotel and Conference Center

Columbus, Ohio

 

Conference Theme: Healthcare for the 99% - Overcoming Roadblocks to a Basic Human Right

Keynote Speaker: Joe Brewer - Founder and Director of Cognitive Policy Works, Project Coordinator for the Seattle Innovators, Former Fellow of George Lakoff's Rockridge Institute. Click here to view the full conference brochure and mail-in registration form, which can be downloaded for printing. Click here if you prefer to register and pay online.

Viewpoint: Injustice in Health Care

The “profits-first, market-based health care system” left an ED patient with a debilitating stroke because he couldn’t afford the co-pays for follow-up care or the medication to keep his blood from clotting in his atria. Dr. Cotton explains. Read More

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