Suppose I throw a rock through a store owner’s window. You admonish me for this act of vandalism. But I reply that I have actually done a good deed.
The store owner will now have to employ someone to haul the broken glass away and someone else, perhaps, to clean up afterward. Then, the order of a new glass pane will create work and wages for the glassmaker. Plus, someone will have to install it. In short, my act of vandalism created jobs and income for others.
The French economist, Frédéric Bastiat called this type of reasoning the “fallacy of the broken window.” All the resources employed to remove the broken glass and install a new pane, he said, could have been employed to produce something else. Now they will not be. So society is not better off from my act of vandalism. It is worse off — by one pane of glass.
But there is a new type of Keynesian (to be distinguished from Keynes himself) that rejects the economist’s answer. Wasteful spending can actually be good, they argue. If so, they will love what happens in health care.
By some estimates one of every three dollars spent on health care is unnecessary and therefore wasteful. ObamaCare’s “wellness exams” for Medicare enrollees — so touted during the last election — is an example. Millions of taxpayer dollars will be spent on this service, yet there is no known medical benefit. Similarly, ObamaCare is encouraging all manner of preventive care — by requiring no deductibles or copayments — which is not cost effective.
Continue reading “Could Wasteful Healthcare Spending Be Good for the Economy?”
Filed Under: Economics, OP-ED, THCB
Tagged: Economics, fallacy of the broken window, fiscal stimulus, Frederic Bastiat, Health care spending, Johannes Wieland, John Cochrane, John Goodman, Medicare wellness exams, Obamacare, Paul Krugman, Preventive care, The Affordable Care Act
Jan 31, 2013
In a recent Health Alert I evaluated Paul Krugman’s claim that ObamaCare is going to save “tens of thousands of lives” and the repeal of ObamaCare will lead to the death of “tens of thousands” of uninsured people.
Krugman’s bottom line: Mitt Romney wants to let people die. The economics profession on this same subject: Krugman’s claims are hogwash.
But there is something that does cause people to die: socialism. More precisely, the suppression of free markets (the kinds of interventions Krugman routinely apologizes for) lowers life expectancy and does so substantially.
Economists associated with the Fraser Institute and the Cato Institute have found a way to measure “economic freedom” and they have investigated what difference it makes in 141 countries around the world. This work has been in progress for several decades now and the evidence is stark. Economies that rely on private property, free markets and free trade, and avoid high taxes, regulation and inflation, grow more rapidly than those with less economic freedom. Higher growth leads to higher incomes. Among the nations in the top fifth of the economic freedom index in 2011, average income was almost 7 times as great as for those countries in the bottom 20 percent (per capita gross domestic product of $31,501versus $4,545).
What difference does this make for health? Virtually, every study of the subject finds that wealthier is healthier. People with higher incomes live longer. The Fraser/Cato economists arrive at the same conclusion. Comparing the bottom fifth to the top fifth, more economic freedom adds about 20 years to life expectancy and lowers infant mortality to just over one-tenth of its level in the least free countries.
Continue reading “Socialism Kills”
Filed Under: Commentology, OP-ED
Tagged: Capitalism, free markets, income equality, John Goodman, Obamacare, Paul Krugman, Poverty, Socialism, welfare state
Nov 7, 2012
In last Sunday’s New York Times, Paul Krugman extolled the virtues of Medicaid. Here are some excerpts from this astonishing column:
“Medicaid has been more successful at controlling costs than any other major part of the nation’s health care system.”
“How does Medicaid achieve these lower costs? Partly by having much lower administrative costs than private insurers.”
“Medicaid is much more effective at bargaining with the medical-industrial complex.”
“Consider, for example, drug prices. Last year a government study compared the prices that Medicaid paid for brand-name drugs with those paid by Medicare Part D — also a government program, but one run through private insurance companies, and explicitly forbidden from using its power in the market to bargain for lower prices. The conclusion: Medicaid pays almost a third less on average?”
In the days since this column was published, I have spoken with many experts on Medicaid who are uniformly appalled by it. While I may not reach the same audience as the New York Times (at least not yet!), I feel compelled to set the record straight on Medicaid’s “successes.”
Continue reading “Setting the Record Straight on Medicaid’s “Success””
Filed Under: THCB
Tagged: David Dranove, Health care spending, Medicaid, Paul Krugman, Quality
Nov 5, 2012
After a seemingly endless presidential campaign, we’re just days away from the Nov. 6 election. And to be sure, health care issues remain at the forefront.
Both Barack Obama and Mitt Romney have tried to claim the high ground as Medicare’s number one defender. In his latest column, the New York Times’ Paul Krugman argues that next week’s vote “is, to an important degree, really about Medicaid.” And writing on Bloomberg View, columnist Ezra Klein takes an even broader stance, concluding that “this election is all about health care.”
But health care isn’t all about the election, despite politics’ seeming ability to draw every sector into its gravitational pull.
In fact, many of the most significant stories in health care from the past two months haven’t come from the campaign trail — where candidates have mostly rehashed their existing policies — but from the private sector, as employers and providers have made aggressive, and sometimes unexpected, deals and changes. Reforms that will continue regardless of who’s sitting in the Oval Office next year.
Here are some of those stories.
Top Employers Move to Defined Contribution
As previously discussed in “Road to Reform,” Sears Holdings and Darden Restaurants have made plans to shift away from their current “defined benefits” — where they choose a set of health insurance benefits on behalf of their workers — and roll out “defined contribution” instead.
Under that model, firms pay a fixed amount for employees’ health benefits and allow workers to choose their coverage from an online marketplace, such as the Affordable Care Act’s health insurance exchanges or the emerging number of privately run exchanges.
In theory, the model would slow employers’ health costs while allowing employees to have more control over their own health care spending. And Sears and Darden’s announcements aren’t wholly unexpected, given that many employers have signaled their interest in making a similar shift.
But given the long-entrenched employer-sponsored health coverage model, some employers needed to be the first movers before the rest would be ready to follow.
Will they? That will be a major industry issue to watch across the next months.
Continue reading “How Health Care Changed While You Were Watching the Election”
Filed Under: THCB, The Business of Health Care
Tagged: 2012 Election, Advisory Board Company, Alternative Quality Contract, Barack Obama, BCBS of Massachusetts, bundled payments, California HealthCare Foundation, California Healthline, Chas Roades, Dan Diamond, Darden Restaurants, employee benefits, Employers, Ezra Klein, Health Care Reform, Massachusetts, Medicare, Mitt Romney, Partners Healthcare, Paul Krugman, Sears Holdings, The Affordable Care Act, Wal Mart
Nov 1, 2012