12 Aug 2009

Is There a Doc in the House? A Response to Krugman on ObamaCare

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Today I am pleased to offer a response to Paul Krugman’s arguments that the free market can’t work in health care. The writer is Matthew DiPaola, who was in my high school class. More important, as his bio below indicates, Matthew is an actual MD and thus may actually know more than Krugman, me, and all the other economists put together on this issue. The below essay is a lightly edited version of a comment that originally ran on Jay Parkinson’s blog. Matthew is willing to write future essays on these matters, so put your requests in the comments. –RPM


A Medical Doctor Responds to Paul Krugman on ObamaCare
By Matthew DiPaola

I completely disagree with Krugman and again believe that his NY Times pulpit and Nobel prize in economics inappropriately legitimize a weakly argued, soundbite point.

Krugman claims that health care is distinctive for 2 reasons: 1) no one knows “when or whether” they may need care (health events can be unpredictable) and 2) health care is complicated. He is wrong on both points. In order for his point to ring true, he would have to prove that free markets are incapable of efficiently distributing unpredictable and/or complicated services. Yet free markets efficiently distribute both unpredictable and complicated services all of the time.

Point 1. Free markets operate extremely efficiently to protect against the unpredictable events of death (life insurance), car accidents (automobile insurance) and fires (homeowners insurance). In each case there is a disincentive for the insurance company to pay–not unlike the case of health care. Well managed insurance companies such as Geico, through excellent planning and policy pricing are able to offset claim payouts by prudent float investment and either break even or turn a profit. Such insurance firms provide a solid protective service to countless people daily. Without free markets (and we can argue about how truly “free” some of these markets are) these people would surely be worse off.

Point 2. Free markets efficiently allocate complicated goods and services all of the time. The computer industry is an excellent example. I don’t know how to create a microchip but I can certainly explain to a competent professional the types of activities for which I would use a computer. And in a free market, an honest, trained salesperson can help guide me to the appropriate computer, at a good price for my needs.

The same holds true for medicine. No patient needs to know the nitty gritty distinctions between various stents. They do, however need to be educated and guided appropriately regarding the qualities of that stent that most affect their decisions: “Doctor, how long does stent X last? What are the side effects? What are appropriate alternatives? What quality of life will this provide me?” The professional’s role is to guide the patient through this complicated decision process and is their “value added” to the market interaction.

Krugman fails to delineate why health care is truly distinctive. Health care is distinctive because its practitioners are obligated through professional ethical standards to provide the highest level of care to ALL patients/consumers regardless of age, disease status and ability to pay. Certainly this differs from the flat screen TV market: this would be the equivalent of every TV shopper DESERVING the $5000 48-inch flat screen TV (assuming that the 48-inch was considered the highest quality). And this ethic may indeed raise costs, to the extent that high quality equals high cost. One can argue ad infinitum about what constitutes the “highest level of care.” And I think Jay Parkinson makes good points in his writing that high cost does not ALWAYS equal high quality care.

Krugman’s last point about there being no successful free market systems in health care is utter nonsense. There has been no such thing as a free market in health care in the US since at least 1965 and he woefully ignores any examples prior to this. Government intervention has perverted the free market to the extent that any conclusion about its true workings is impossible to make. This would be like the commissioner of baseball, prior to Jackie Robinson entering Major League baseball, saying “there is no evidence that black players can be successful in the Major Leagues.” Rubbish.

Milton Friedman, a Nobel prize winning economist with a decisively different take on these issue is worth considering. For a look at why free markets in health care must be considered please read Friedman’s 2001 article “How to Cure Health Care.”

Matthew DiPaola holds an MD from Cornell University. His residency was in orthopedics at Thomas Jefferson University in Philadelphia. In September he will begin as Assistant Professor of Orthopedics at Wright State University in Dayton, Ohio. His views expressed here do not necessarily reflect the views of his employer.

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