Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

04 February 2008

The Clinton-Krugman Health-Care Swindle

[For 2009 posts on the health-insurance industry’s mammoth swindle, click here or here.]

Paul Krugman, the New York Times columnist, is at it again. On the day before Super Tuesday, he’s showing his bare-knuckle partisanship for Hillary Clinton and her health-care mandates. His column is rife with misinformation.

Here’s his key paragraph:
    “[A recent study] finds that a plan without mandates, broadly resembling the Obama plan, would cover 23 million of those currently uninsured, at a taxpayer cost of $102 billion per year. An otherwise identical plan with mandates would cover 45 million of the uninsured — essentially everyone — at a taxpayer cost of $124 billion. Over all, the Obama-type plan would cost $4,400 per newly insured person, the Clinton-type plan only $2,700.”

Surely Krugman, who purports to be an economist, is familiar with the law of supply and demand. According to that law, the higher the price, the fewer people will buy a thing. That law works in a free market, without any mandates at all.

If you increase the market price of insurance from $2,700 to $4,400—an increase of 63%—you’ll decrease the number of willing buyers accordingly. You can’t calculate the exact decrease without knowing the slope of the demand curve, which economists call the “elasticity” of demand. But it’s not unreasonable to think that 8% of buyers might drop out for each 10% increase in the price. If that’s the case, i.e., if 50.4% of the buyers dropped out, the higher-priced plan would have only 22.3 million buyers, fewer than what the so-called “Obama” plan in the study has.

In other words, the good old demand curve from Economics 101 explains the decrease in coverage in Krugman’s key paragraph without regard to mandates. Fewer people buy health insurance in the so-called “Obama” plan because it costs more.

The second point to note about Krugman’s so-called analysis is the actual price. Today’s generally accepted market price for decent health insurance for a family of four is $12,000. My own insurance costs over $6,800, for myself alone (my wife has her own insurance).

So what kind of insurance would people get for the $2,700 that Krugman assigns to Hillary’s putative plan? Not much. It would be insurance against catastrophic loss only, with high deductibles. In other words, Hillary’s $2,700 plan would keep sending a good fraction of today’s uninsured back to the emergency rooms, for which we all pay.

Krugman’s transparently partisan analysis ignores the most basic economic law of all: there’s no such thing as a free lunch. If the problem of universal health insurance could be solved by insuring more people at a lower total cost, as Krugman’s paragraph states, we would have solved it long ago. Something has to give, and what gives in the study Krugman cites is quality. You can’t get much health insurance for $2,700.

Unfortunately, neither mandates nor intellectually dishonest columnists can repeal the laws of economics.

As for politics, Krugman errs even more wildly. He plays right into the hands of conservatives, the insurance companies, and the drug companies.

The American people don’t like being told what to do. Even the Russians abandoned “command and control”—after trying it for over 70 years.

Apparently Krugman thinks that Democrats can get a foot in the door for “single payer” by starting with mandates. But that’s exactly what Hillary tried to do in 1993. She failed.

You might believe that the coming Democratic tidal wave will be strong enough to overwhelm Americans’ deeply ingrained resistance to “socialized medicine,” which has kept us from having a rational health-care system for over half a century. But don’t bet your health on it. On April 19, 2008, the Wall Street Journal reported [subscription required] that John McCain already had started pounding Hillary for her health-care mandates, although the general-election campaign had not even begun.

Senator Obama has a brilliant plan to bring the insurance companies along toward greater government involvement by controlling costs and making their lives easier. Hillary and Krugman want to stop free-market cost increases, in essence, by passing a law against them. Who’s the realist?

      NOTE: For earlier and more complete discussions of mandates and Paul Krugman’s views, see Post 1 and Post 2.


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