In Which I Take on a Nobel Laureate

Mark of New Jersey

Mark is a Founding Editor of The League of Ordinary Gentlemen, the predecessor of Ordinary Times.

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24 Responses

  1. Ben says:

    Wow, where to start? I’m all for a critical discussion of any component of health care reform, and like you, I long for better details on how certain aspects may work – but I think there are problems in the analysis (content & structure).

    I think it’s disingenuous to suggest that advertising for a public plan would be equivalent to the level of advertising required to compete in a private marketplace, especially if the public option is put into place to catch those that are otherwise left out of (or are dissatisfied w/) the system. These are people that will be looking for the plan, it wont need to be marketed to them. And regarding overhead, if we accept the estimated 2.x% overhead for medicare, and 13.x% overhead for commercial insurance, it’s not hard to see how one might be better at saving money in the long term – especially with such a large negotiating pool.

    Regarding data – The only cited info you have in this post is the 2.2% profit margin (which is from a blog post – that also contains caveats you neglect to mention, as well as insightful comments that discuss better measures of success (risk/return ratios)), while at the same time you are asking Krugman to provide better details on the claims he makes.

    And, In the closing paragraphs – you make a number of unsubstantiated claims that you present as common sense, but are these points true? Where do you derive these insights? How do we know the billing practices and costs of doctors? How do we know that interstate competition would do anything to help with costs? What is the mechanism? They may be valid ideas, but in a post criticizing Krugman of neglecting the specifics, you are similarly fast and loose with details or data to back up your own assertions.Report

    • Ben in reply to Ben says:

      I’d like to point out my numbers on overhead are but one of many estimates, and that overhead for Medicare is estimated between 2.1 – 6.x %, while for private insurance it’s 8-15 (ish) – as i can understand it – (apparently it’s something akin to comparing oranges and nectarines – close but not identical) – so grains of salt all around on those numbers…Report

    • Mark Thompson in reply to Ben says:

      ” think it’s disingenuous to suggest that advertising for a public plan would be equivalent to the level of advertising required to compete in a private marketplace, especially if the public option is put into place to catch those that are otherwise left out of (or are dissatisfied w/) the system. ”

      A few problems with this – first, it assumes a level of information dissemination that generally doesn’t exist, as well as making assumptions about what the uninsured and disillusioned are looking for. It would be one thing if everyone were automatically enrolled, but that’s not what the public option would do. The bigger problem is that this logic applies equally to just about any industry where there is more than one market entrant. By definition, someone who is dissatisfied with an existing producer or unable to purchase any product by that producer will seek out an alternative. Yet companies advertise anyhow, and so do government market participants like the Post Office (which seeks to market to those dissatisfied with FedEx and UPS). Even people who may be dissatisfied with the current system are going to need to be persuaded to sign up for the public option since people so often prefer the devil they know to the devil they don’t. I just don’t see any reason why we should expect people to be more likely to take the burden of seeking out competitors in the health insurance market than we expect them to take that burden on in other markets.

      “if we accept the estimated 2.x% overhead for medicare, and 13.x% overhead for commercial insurance, it’s not hard to see how one might be better at saving money in the long term – especially with such a large negotiating pool.”

      The trouble here is that Medicare also takes a much more laissez-faire approach to reviewing claims, which means it has less overhead but also more waste (which may or may not be a bad tradeoff, but has little to do with cost controls). Moreover, Medicare really doesn’t need an advertising budget since it is essentially a single-payer system for the elderly. There’s automatic enrollment and no competition with it. The differences between cost controls in Medicare and the private sector (which exist, though it’s not as if Medicare is covered in glory either) thus have no relationship to whether there would be a diffrence in cost controls between a public option and the private sector – definitionally, the public option would need to behave in ways that Medicare doesn’t need to, and those differences are a pretty clear source of why Medicare is somewhat less expensive than private sector insurance. These differences are also a big part of why single-payer would make sense in ways that the public option does not.

      “while at the same time you are asking Krugman to provide better details on the claims he makes. ”

      I’m asking for someone more knowledgeable than I to provide evidence why the proposed change will actually improve the status quo. Typically the burden is on the party advocating change to explain why their preferred change would improve matters.

      My closing paragraphs touch on subjects that I have covered repeatedly in the past and I don’t feel the need to rewrite those posts every time I delve into this arena, particularly when they are only tangential to the clear point of this post, which is that I would like to understand how the public option is expected to significantly reduce costs.

      That said, this question “How do we know that interstate competition would do anything to help with costs?” seems to have an obvious answer. The central argument for the public option is that it introduces competition and that more competition reduces costs. If you accept that point as true, then opening things up for interstate competition would have a greater effect because instead of having competition only between two entities for a given customer, you have competition between dozens of entities. In other words, interstate competition definitionally creates more competition than between a monopoly and a public option.Report

  2. Mike says:

    You might want to take a look at this post from yesterday by Ezra Klein. It really clarified for me the relationship between the public plan and cost control.Report

    • Mark Thompson in reply to Mike says:

      Thanks, Mike. I probably should have read Klein’s post before I wrote this since it was what Krugman was responding to. It seems like he is pretty much agreeing with me that the public plan has little to do with cost control although he thinks there are other, nonquantifiable reasons to support it. I’m not sure what I think about those reasons. That said, because they are non-quantifiable and separate from cost control, they need to be balanced against increasing concerns about the size of the budget deficit. If the public option could in the long run impose significant cost control, then concerns about the deficit would largely be rendered moot.Report

  3. ChrisWWW says:

    If you want significant cost controls, embrace Medicare For All or defacto nationalization of the insurance industry through strict regulation.

    In the mean time, we can use a little bit of our collective wealth to provide health care to the less financially fortunate.Report

    • Mark Thompson in reply to ChrisWWW says:


      I’ve actually argued in the past (and would have done so in this post had I not had a sick daughter to attend to) that I think single-payer would be an improvement over the existing system, although I think it far from ideal. I’ve regularly made arguments for other options that I think would be closer to ideal – voucherized health care, Wyden-Bennett, etc. My objection is not to the idea of health care reform, nor is it to stronger health care safety nets – my objection is to reform that I think does little to correct existing problems at a very large cost.Report

      • ChrisWWW in reply to Mark Thompson says:

        I think we agree on that count. Unfortunately, I think to be heard on this issue, we need to push the existing proposals toward our preferred system rather than stand on the sidelines claiming an entirely different idea is all we’re prepared to support.Report

        • Mark Thompson in reply to ChrisWWW says:

          Fair enough. But my problem is that I think taken as a whole the proposal that is likely to pass will make things worse more than better (especially the employer mandate). I also think that, to the extent one’s political goal is ultimately single-payer, the existing proposals will make achieving that goal less possible.Report

  4. “the huge overhead of the private insurers, much of which involves marketing and attempts to cherry-pick clients,”

    My brother works fairly high up in the health insurance industry and his contention is that they would love to insure everyone – but it’s only feasable with a mandate. Otherwise they have to be selective.Report

  5. Ryan says:

    I’m actually mostly in agreement with this. The public option is no hill worth dying on, and I think a lot of Democrats know that (the President seems to, at any rate). As Ezra has pointed out repeatedly, reductions in overhead are mostly due to size rather than public/private status. Putting everyone into a few large private plans would have the same effects on overhead as putting them in a public insurance option. I think, as Mike sort of indicates, we don’t spend nearly enough time examining the ways in which combining an individual mandate with large private insurers can form the basis of useful health care reform.Report

    • I always use the analogy of a car insurer. It’s like telling State Farm that they have to cover everyone, even when those people are telling them in advance that they are going to have several very expensive wrecks in the next 5 years. So already the model is kind of jacked because almost everyone will use at least some services. So you (or your employer) pay in and some of the money is always going to come out. A car insurer can hedge their bets that most drivers will go years and years without a wreck and the pool of funds will remain large. Health insurers have no such luxury, especially if they are forced to cover high risk patients with guaranteed money-draining conditions.

      The only way to mitigate the risk and make the business model work would be to force everyone to get coverage. I’m pretty okay with that. I just don’t know how you cover the gaps when people are between jobs, extremely poor, etc. That’s probably where Uncle Sam would have to foot the bill.Report

      • Ryan in reply to Mike at The Big Stick says:

        Bingo. Universal, mandated coverage, subsidies, and severing the link between employer and insurance – a nice start. Obviously the political realities make that last thing basically unworkable, so we have to spend some time at the drawing board, but I think the room for compromise here is a lot larger than the internet would have us believe. As long as everyone is willing to give up things they want in exchange for something workable.Report

  6. Kyle says:

    Hah, from the title alone I gathered it was something Paul Krugman wrote. As an aside, since the departure of Bill Kristol, I think he’s the most shameless peddler of ideology masked as insight in the pages of the Times. Considering his background he really should have higher standards for what he writes.Report

  7. Chris Dierkes says:

    Even Ezra Klein today said that the public option—as currently being discussed in the House–is not going to reduce cost. It would, he argues, make it easier to pass later legislation that will do such a thing, but it won’t by itself. Cost reduction comes from A)preventive care (meaning people don’t get as sick to begin with and therefore require as much care) B)rationing care (less care offered) or C)paying less for care (like Medicare). C is not happening with the legislation on offer in the House (much less the Senate’s weaker versions). Single payer isn’t on the table, so B isn’t an option either (death panels mania or no). And I gather there’s some A in the bills on the table, but not enough to make a serious dent.

    The public option may be good from the position of accessibility, but as currently structured is not about cost.Report

  8. Chris Dierkes says:

    sorry, here’s the Klein link (actually from yesterday not today):

    The Public Plan is not the Same as as Cost Control.

    I highly recommend this article.Report

  9. Michael Drew says:

    All the arguments offered here that public option will not bring cost savings are entirely speculative and based in assumption after assumption. Any case that it will bring savings (equal to public expense? Impossible to say.) will also inevitably be speculative and have to make assumptions. If you assume that there is a mechanism that proponents have in mind, but particular ones (ie Krugman) don’t make explicit, why not just do the research rather than utterly obscuring any clear discussion by trying to dispel speculation with a thick cloud of further speculation?

    Or if your case is that there needs to be an open-and-shut case for a certain amount of savings to justify the expense (ie we should just not try things that have a chance to alleviate the problem somewhat for fear of making a bad situation bad), why not just say that?Report

    • I would say that the burden is on the party proposing the change to demonstrate that the change will not only work but is also a particularly essential element of health care reform. Sure, whether the amount of advertising a public insurance program would do is equal to the amount that private companies need to do is largely speculative since there’s so many variables at play, but I’d like to see an argument as to why the public plan would be inherently different from a private company in terms of advertising budget. Simply assuming away, as Krugman and other public option advocates appear to do, that a public plan would not advertise doesn’t work. Essentially, I’m pointing out how things currently exist; I want to understand why we might expect the public option to be different in a meaningful way.Report

      • Put another way – I really would like to see an explanation of how, exactly, the public option is supposed to significantly reduce costs beyond vague handwaving to “competition” and “overhead.” Otherwise the justification for the public option as essential to reform because it cuts costs seems to rest on little more than “because I said so.”Report

        • Michael Drew in reply to Mark Thompson says:

          I agree that the burden should be on those proposing the option — that’s just common sense. Ultimately, however, the standard of proof has to be a preponderance of evidence, as any pretense at near-certainty (or requirement thereof) about the future results of a propositional reform would be absurd. We cannot know, and possibly have quite limited ability even to guess, exactly what the outcomes of various proposals will be. That’s why one’s position on the status quo is very important. It’s quite important whether you regard the status quo as irritating or even painful, or alternatively as an acute crisis that can’t be allowed to continue. In either case, the observer can describe himself as ‘not defending’ the status quo. But how he views that question will obviously affect the calculation about how certain and how great the benefits of a particular proposal to address the problematic status quo need to be to be worth trying.

          I’m also still not sure I understand why you concede there must be some more specific mechanism that people have in mind when they cite expected increases in competition or reductions in cost. You might well have a case there — perhaps they simply believe it is obvious to see that there would be some such benefits. (To be fair to Krugman, you seem to focus on his point about marketing in the overhead discussion, but I think he is actually more focused on the risk-protection apparatus that a public option would [I believe] avoid, being required to take all comers.) If you want to challenge a Nobel laureate to show his work, I’d say go ahead and do it. No need to be be falsely modest. But if you really think such a thing exists, then it comes off as disengaged not to locate it, IMHO.

          All of this is rather without import in any case, as it is quite clear that any meaningful public option is just a bargaining chip at this point in any case. But it’s a diverting enough intellectual exercise in any case.Report