The Corner

Two Visions

In a blog post on the president’s speech yesterday, Paul Krugman offers a great example of how some on the left think about health-care costs:


The main thing, though, is the strengthened role of and target for the Independent Payment Advisory Board. This can sound like hocus-pocus — but it’s not.


As I understand it, it would force the board to come up with ways to put Medicare on what amounts to a budget — growing no faster than GDP + 0.5 — and would force Congress to specifically overrule those proposed savings. That’s what cost-control looks like! You have people who actually know about health care and health costs setting priorities for spending, within a budget; in effect, you have an institutional setup which forces Medicare to find ways to say no.


And when people start screaming about death panels again, remember: you can always buy whatever health care you want; the question is what taxpayers should pay for. And compare this with a voucher system, in which you have insurance company executives, rather than health-care professionals, deciding which care won’t be paid for.


The ideal, then, is technocratic management where experts who “actually know about health care and health costs” are the ones who say yes and no. And the alternative is understood to be insurance companies deciding what will be paid for.

But what about consumers? The actual alternative to being governed by Krugman’s philosopher-accountants is allowing insurers to offer a relatively broad (though still regulated) variety of options and allowing people to choose among those options based on their individual priorities and wishes. The purchase is subsidized up to a point (as Krugman says, rather amazingly, “you can always buy whatever health care you want; the question is what taxpayers should pay for”), and that point will certainly put downward pressure on the prices that insurers charge, since they will want to get a piece of the pie. If the government provides about $15,000 to the average Medicare recipient, there will be insurers competing to offer attractive insurance options at that price—they won’t leave that money on the table. And there will be others competing at higher levels for those seniors who want to supplement the premium-support level. Unlike today, there would be a reason for insurers to offer coverage people want at prices people can afford (with the help of premium support dollars), and they would have the freedom to experiment with various ways of giving people what they want more efficiently.


That’s how markets achieve efficiency—by allowing producers and consumers to find each other, rather than by empowering experts to decide what consumers should want and how much producers should charge for it. We don’t have that kind of consumerism in the health-insurance sector today, largely because of the nature and design of three government policies: Medicare, Medicaid, and the tax exclusion for employer-provided coverage. All three shield the health-care and insurance system from consumer pressure and create incentives for spending more. And the result is a very inefficient health-care sector with exploding costs. President Obama wants to double down on that. Paul Ryan wants to let consumer pressure push down costs.


As Krugman implies, someone must make a decision about “which care won’t be paid for.” Shouldn’t that someone be the patient and his family rather than Krugman’s panel of experts?

Yuval Levin is the director of social, cultural, and constitutional studies at the American Enterprise Institute and the editor of National Affairs.

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