Krugman, Progressive Democrats still don’t get it on healthcare

Any time a monopoly is established, the results are always higher prices, poorer quality and less revenue for the monopolist.

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Cartoon by Branco. Reproduced with permission. (See below)*

WASHINGTON, August 8, 2017 — In an August 7 New York Times column, economist Paul Krugman asked, “What’s next for Progressives?” He notes that John McCain’s “No” vote on the Senate’s “skinny” repeal of the Affordable Care Act (ACA) caused the measure to fail. Krugman calls this failure to repeal a “huge victory for Progressives.”

He adds that Progressives “did a startlingly good job of marshaling the facts, mobilizing public opinion and pressuring politicians to stand their ground.” So, he asks, what’s next?

Progressives’ goal is a single payer healthcare system that would cover every American. They cite as examples countries like Britain, Australia and the Netherlands, which, the nonpartisan Commonwealth Fund reports, are the top three performers in providing low-cost, universal coverage.

Krugman notes that Britain and Australia have true socialized medicine while the Dutch have a system that he calls “Obamacare done right.” That system requires individuals to purchase private insurance with subsidies for low-income people.


If properly implemented, Krugman claims, ACA would work. In New York, for example, only 5.4 percent of the population is uninsured.

Moving to a single-payer system in the U.S. would be problematic, he says. That’s because about 156 million Americans currently get health insurance through their employers. They are generally happy with this coverage, although they do complain about the cost.

A single-payer system would cost employees their employer-provided health insurance. The only way to get those Americans to support a single-payer system would be to convince them that lower premiums would offset higher taxes.

Alternatively, as Krugman associate Jon Gruber would say, “We have to rely on the stupidity of the American voter.”

Just about all economists agree that when a monopoly is established, it brings higher prices, lower quality, and greater profits for the monopolist. The reasons why are easy to see.

Monopoly means there is only one supplier of a good or service. Without competition,  there is little incentive for the monopolist to innovate or reduce prices. In a competitive market, there is plenty of incentive to operate efficiently. That efficiency leads to lower costs. Until other competitors adjust, that leads to lower prices, greater market share, and greater profit.

The monopolist, who already owns 100 percent of the market, faces an incentive to cut costs if it can hold prices constant and expand profits. If the monopolist is regulated or is a government agency, it has no incentives to cut costs at all.

That raises another issue: If we institute a government-run system, it removes the profit motive to cut costs, since government, as a non-profit monopoly, simply sets the price equal to the cost. Economists like Krugman and Gruber say that single payer cuts cost by reducing management costs, but that is wrong.

Every time the government break up existing monopolies via deregulation—examples include the airline, communications and transportation industries—the results are lower prices, expanded service, and higher profits for the providers. That is the direct result of unleashing competitive forces in the market.

The first priority of Progressives in healthcare was to provide coverage for the 15 percent of Americans who were uninsured pre-Obamacare. Under the ACA, about 9 percent of the population is without health insurance; the ACA helped about 6 percent of the population.

Progressives say they want to provide lower cost, comprehensive health insurance to the other 85 percent of Americans, but only after they’ve accomplished the goal of 100 percent coverage. They have it backward; their first priority should be to provide high quality, reasonably priced health care for the 85 majority.

Health insurers are leaving the Obamacare exchanges in droves. Remaining insurers suggest that huge price hikes are on the way again this fall, when new pricing for 2018 coverage must be made public. Progressives blame uncertainty from the Trump administration for the ongoing exodus of insurance carriers.

While uncertainty may contribute to the exodus, the real reason for the thinning number of carriers and choices under Obamacare is that it is unprofitable for them to remain.

The cause of this rolling health insurance catastrophe is that the ACA required all policies to cover certain services, even if the consumer did not want them. That resulted in policy prices so high that many healthy 20-year olds decided they would rather pay a penalty than purchase insurance. Without healthy people in the insurance pool, the whole concept of health insurance fails.

If Krugman were really interested in providing the best health care to the most Americans, he would abandon his “social justice” measurements of success, and take a sober look at how the healthcare market really works in a normally competitive economy. As an economist, he should easily understand that.

*Cartoon by Branco. Reproduced with permission and by arrangement with LegalInsurrection.

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