Market Competition Doesn't Work with Health Care

December 17, 2011, 8:33 am
Ron Wyden, Useful Idiot

by Paul Krugman

I was too busy and too overstretched to weigh in on this earlier, but Sen. Ron Wyden did indeed do a bad, bad thing in his joint proposal with Paul Ryan. Ezra Klein explains why; and the devil isn’t in the details.

What Wyden did was to give cover to the fundamental fallacy of right-wing attempts to dismantle Medicare: the claim that market competition is the key to reducing health care costs. We have overwhelming evidence on this — and it just isn’t true. Looking both within the United States and across countries, if you ask which systems are best at cost control, the ranking looks like this:

Government provision as well as financing (socialized medicine) > single payer > market competition

Why doesn’t the market work here? Ken Arrow explained it all half a century ago. Patients by and large don’t have the information to evaluate medical treatments; in any case, they mainly buy insurance rather than medical care directly; and insurers profit not by providing the most cost-effective care, but by trying to insure people who won’t need care.

And it’s not as if market competition hasn’t been given a try; in this country it has been tried over and over, by politicians who won’t take no for an answer.

Oh, and if someone starts talking about how the Affordable Care Act relies on private insurers, give me a break; the reason the ACA works the way it does is the raw power of the insurance industry, which forced advocates of universal coverage to settle for an inferior system. I still think that deal was worth doing, but there’s no reason to take Medicare, which does it right — or at least closer to right — and degrade it into a worse system.

So why would anyone who isn’t a right-wing ideologue propose that kind of degradation? Inquiring minds want to know.