The Agenda

Paul Krugman’s Way with Words on IPAB and Insurance Company Executives

Paul Krugman is a fan of IPAB:


Arguably the most important thing we can do to limit the growth in health care costs is learning to say no; we cannot afford a system in which Medicare in particular will pay for anything, especially when that’s combined with an industry structure that gives providers a strong financial incentive to engage in excessive care.

So naturally, the Independent Payment Advisory Board, which is the first step toward making rational choices, is under attack.

Mainly the attack is coming from Republicans, who want to dismantle Medicare, not save it — their proposal is that instead of having Medicare make choices based on expert advice, we should give seniors inadequate vouchers and let insurance company executives make those choices instead.

As I’ve noted in this space, I don’t have a problem with IPAB. I just think that it’s been oversold. An IPAB in the hands of a conservative president could, in my view, do some good. As I understand it, IPAB applies the logic of BRAC, the base-closing commission, to implementing payment reforms within the Medicare system. IPAB would offer a package of recommendation which Congress could then accept or reject in toto. Given the strong political incentives surrounding the Medicare system, it’s easy to imagine Congress voting down any remotely controversial package, which would make IPAB completely toothless. It’s not clear to me that a toothless IPAB is worse than the status quo, but I’m certainly open to the possibility that I’m wrong here. An IPAB with teeth might be able to do some good at the margin as we transition to a premium support model, and as we build the new Medicare exchange. 

I did, however, find Krugman’s characterization of the Republican approach to Medicare clever: he could just as easily have said that the “inadequate vouchers” would allow seniors to choose from a variety of private health insurance plans, which is the way consumer markets tend to work. In this case, it is the inadequacy aspect of the vouchers that is the problem. (This is a subject of long-running debate, and I think Josh Barro has made convincing arguments on this front.) Yet Krugman is positing that it is insurance company executives that are making the relevant choices, ignoring the fact that the insurance company executives represent competing insurers. And who does Krugman want to make those choices instead?

The thing is, we’re going to make choices eventually, one way or another. Should the choices be made by medical professionals, or should we rely on the kindness of corporations?

The salient question, as ever, is which medical professionals? Right now, medical professionals are in the driver’s seat and that’s a big part of the cost growth problem — Krugman’s point about “learning to say no” is about learning to say no to medical professionals and, by extension, their patients. I assume that Krugman is envisioning an IPAB run by medical professionals, focused on questions of clinical effectiveness, etc. Of course, one can also imagine that at least some insurance company executives are also medical professionals. One private insurance plan could place a heavy emphasis on only funding effective treatments, thus placing a heavy emphasis on credible medical expertise. Another could emphasize offering a wide network of providers and treatments, with the proviso that there will be more cost-sharing. 

It’s easy to see why Krugman might prefer the starker formulation. It’s not clear to me that he’s giving his readers as clear a picture as he should. 


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