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Monday, November 07, 2005

PRIDE, PREJUDICE & INSURANCE By PAUL KRUGMAN

PRIDE, PREJUDICE & INSURANCE By PAUL KRUGMAN

General Motors is reducing retirees' medical benefits. Delphi has declared bankruptcy, and will probably reduce workers' benefits as well as their wages.

An internal Wal-Mart memo describes plans to cut health costs by hiring temporary workers, who aren't entitled to health insurance, and screening out employees likely to have high medical bills.

These aren't isolated anecdotes. Employment-based health insurance is the only serious source of coverage for Americans too young to receive Medicare and insufficiently destitute to receive Medicaid, but it's an institution in decline.

Between 2000 and 2004 the number of Americans under 65 rose by 10 million. Yet the number of nonelderly Americans covered by employment-based insurance fell by 4.9 million.

The funny thing is that the solution - national health insurance, available to everyone - is obvious.

But to see the obvious we'll have to overcome pride - the unwarranted belief that America has nothing to learn from other countries - and prejudice - the equally unwarranted belief, driven by ideology, that private insurance is more efficient than public insurance.

Let's start with the fact that America's health care system spends more, for worse results, than that of any other advanced country.

In 2002 the United States spent $5,267 per person on health care. Canada spent $2,931; Germany spent $2,817; Britain spent only $2,160. Yet the United States has lower life expectancy and higher infant mortality than any of these countries.

But don't people in other countries sometimes find it hard to get medical treatment? Yes, sometimes - but so do Americans. No, Virginia, many Americans can't count on ready access to high-quality medical care.

The journal Health Affairs recently published the results of a survey of the medical experience of "sicker adults" in six countries, including Canada, Britain, Germany and the United States.

The responses don't support claims about superior service from the U.S. system. It's true that Americans generally have shorter waits for elective surgery than Canadians or Britons, although German waits are even shorter.

But Americans do worse by some important measures: we find it harder than citizens of other advanced countries to see a doctor when we need one, and our system is more, not less, rife with medical errors.

Above all, Americans are far more likely than others to forgo treatment because they can't afford it. Forty percent of the Americans surveyed failed to fill a prescription because of cost.

A third were deterred by cost from seeing a doctor when sick or from getting recommended tests or follow-up.

Why does American medicine cost so much yet achieve so little? Unlike other advanced countries, we treat access to health care as a privilege rather than a right. And this attitude turns out to be inefficient as well as cruel.

The U.S. system is much more bureaucratic, with much higher administrative costs, than those of other countries, because private insurers and other players work hard at trying not to pay for medical care. And our fragmented system is unable to bargain with drug companies and other suppliers for lower prices.

Taiwan, which moved 10 years ago from a U.S.-style system to a Canadian-style single-payer system, offers an object lesson in the economic advantages of universal coverage.

In 1995 less than 60 percent of Taiwan's residents had health insurance; by 2001 the number was 97 percent.

Yet according to a careful study published in Health Affairs two years ago, this huge expansion in coverage came virtually free: it led to little if any increase in overall health care spending beyond normal growth due to rising population and incomes.

Before you dismiss Taiwan as a faraway place of which we know nothing, remember Chile-mania: just a few months ago, during the Bush administration's failed attempt to privatize Social Security, commentators across the country - independent thinkers all, I'm sure - joined in a chorus of ill-informed praise for Chile's private retirement accounts. (It turns out that Chile's system has a lot of problems.)

Taiwan has more people and a much bigger economy than Chile, and its experience is a lot more relevant to America's real problems.

The economic and moral case for health care reform in America, reform that would make us less different from other advanced countries, is overwhelming.

One of these days we'll realize that our semiprivatized system isn't just unfair, it's far less efficient than a straightforward system of guaranteed health insurance.

[thx ed s.]

7 Comments:

Anonymous Garr said...

There's a section in this newest Paul Krugman column that caught my interest:

"... commentators across the country . . . joined in a chorus of ill-informed praise for Chile's private retirement accounts. (It turns out that Chile's system has a lot of problems.)"

I seem to recall an old NY Times column from several months ago -- maybe by John Tierney -- in which the writer claimed that a Chilean colleague and economist was bragging about the superior returns of his Chilean retirement account. The article was so simplistic that I figured there had to be a catch somewhere that negated the claimed value of the accounts. I was hoping P.K. would explain the real situation with those Chilean accounts, but his recent aside (quoted above) is as close as I've seen.

Jenny, have you come across any articles that identify the problems to which P.K. refers?

Many thanks, by the way, for making these columns available!

4:41 PM  
Anonymous Garr said...

I did some digging just now and found a couple of the articles I was looking for. Brad DeLong (economist at Berkeley), for instance, referenced a posting by Mark Thoma, of the University of Oregon, that directly addresses Tierney's claims. This note from Thoma's posting, in particular, was interesting:

"... Given the pace of contributions, more than half of the workers who retire in the next 30 years will not have enough money in their plans to receive the minimum payout"

Thoma's posting links to a NY Times article that goes into much more depth about problems with the Chilean system (the NY Times article isn't directly available on their site, but it was luckily re-posted elsewhere). The article is pretty damning, noting that:

"... contributors are forced to pay exorbitant commissions to the pension funds . . . a recent World Bank study calculated that a quarter to a third of all contributions paid by a person retiring in 2000 would have gone to pay such charges."

"... For those remaining in the government's original pay-as-you-go system, the maximum retirement benefit is now about $1,250 a month. The National Center for Alternative Development Studies, a research institute here, calculates that to get that same amount from a private pension fund, workers would have to contribute more than $250,000 over their careers, a target that has been reached by fewer than 500 of the private system's 7 million past and present contributors.
This leaves many Chileans in a situation that has led to the coining of a phrase: 'pension damage.' "


That's some bad system they have there.

5:43 PM  
Anonymous Continental Drift said...

I love PK!

America is the only country that ties health-care to employment. That results in 1)US companies will be uncompetitive in the global market and
2) Companies and employees will be pitted against each other. i.e. real employee income will (is) decline and companies will trim benefits.

I think that companies have now realised this and will lobby for the govt. to take over health-care. The only other way to get rid of health-care expenses is to go into bankrupcy. What would you choose?

6:55 PM  
Anonymous continental drift said...

Besides not solving the funding issues plaguing SS, private accounts are not a good choice because most people have NO idea how to manage their money.

Investing in mutual funds with high expense ratios or dabbling in stocks w/o knowing what you are doing is a recepie for disaster. If you plan on retiring in 40years from today, you will need at least $1 million + to gurantee you an income equivalent ot $40K today. That can be achieved with regular contributions to a tax-differed investment tracking the s&P500, but most people will forgo that in favor of something they don't understand. That --to me-- is the real danger of privatising SS.

7:00 PM  
Anonymous Garr said...

Hi Continental Drift!

Yep, with you on the impracticality of privatizing Social Security. That's why I was surprised to read Tierney's claim that it might actually be working well somewhere. But upon further review, his claim turns out to be unrepresentative to the point of dishonesty (big surprise ;-) ).

Personally, I hate having to mess with my 403b (Univ. of Calif's version of the 401k) and 457 retirement investments. It's excruciatingly tedious. I much prefer the Soc.Sec. model, with its guaranteed payments.

Regarding health care, I think Thomas Friedman also makes your point that U.S. companies are at a competitive disadvantage to other countries because U.S. companies have to shoulder the extra burden of (inefficient) employee health care costs. One might expect companies to lobby Congress for a national plan, but they probably see two options:

1) Lobby Congress for a national health care plan, with the risk that they'd have to pay an unknown amount extra to the gov for each employee.

2) Foist most health costs onto employees by, for instance, following the "WalMart" strategy of offering such cruddy health benefits and high co-payments that most employees rely instead on emergency rooms for treatments.

Option 2 is bad for the country as a whole, but it might be attractive to a short-sighted company looking only at its bottom line. That makes me think that a national health care plan won't happen until a substantial majority of citizens become so desperate that this one issue overwhelms the usual hot button issues and leads to a big electoral shift. I thought we were close to that point back when Clinton was first elected, but apparently not, since GOP scare tactics carried the day and the electoral shift actually went the other way in Congress. Still, the issue is bound to grow as more companies drop their health plans or require large co-payments from employees.

9:09 PM  
Blogger jenny said...

hey garr, welcome, sorry i was not responsive earlier when you were looking for info on chile's private accounts. looks like you found what you sought! thank you for sharing it here!

i agree with you and Continental, private accounts suck. Save Social Security.

10:44 PM  
Blogger dorsano said...

China is building cities - many, many, cities with comuter mass transit, state of the art airports, large educational networks, and a wide array of public services

faster than we are repairing bridges.

This country is in for one rude awakening.

3:34 AM  

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