Krugman: Hooray for Obamacare and ‘Command-and-Control’ Gov’t Intervention in the Market

by Jul 18, 2013Health & Vaccines0 comments

Krugman is here lauding government intervention in the market to "solve" a problem that was created by government intervention in the market in the first place.

US Nobel Prize of Economy winner Paul Krugman delivers his speech after he was awarded with the Global Economy Prize 2010 of the Kiel Institute in Kiel, northern Germany, on Sunday, June 20, 2010. (AP Photo/Heribert Proepper)

Paul Krugman wrote on his blog yesterday that “Obamacare is the Right’s Worst Nightmare” (the title of his post) and “Conservatives are right to be hysterical” about it. Why? Because “it’s an attack on everything they believe — and it’s going to make Americans’ lives better. What could be worse?”

What do Republicans believe that Obamacare is an attack on? Krugman actually doesn’t make it clear. In fact, he describes the so-called Affordable Care Act as “ObamaRomneycare”. You know, since the health care reform in Massachusetts under Republican governor Mitt Romney was the model for the ACA. So if Romney wanted that reform to make the lives Americans living in that state worse, why did Obama want to do the same thing for the whole country? Isn’t Obamacare, then, by Krugman’s own argument, a deliberate attempt to worsen the lives of Americans? Krugman doesn’t bother trying to reconcile such contradictions. But we can guess what it is that Republicans supposedly believe that Obamacare is an attack on. More on that in a moment.

He begins by writing:

News from New York: it looks as if insurance premiums on the individual market are going to plunge thanks to Obamacare. This shouldn’t come as a surprise; in fact, the New York experience perfectly illustrates why Obamacare had to look the way it does.

Hmm… Insurance premiums in N.Y. are going to plunge? Thanks to Obamacare? Well, isn’t this prima facie evidence for Krugman’s hypothesis from a blog post he made the day before yesterday, which is that “some things are better done through market mechanisms, while others are better done through at least a bit of command-and-control”, such as “(*cough* health care *cough*)”?

Returning to that question about Republicans, it seems reasonable to presume that this is why Obamacare is “an attack on everything they believe”, because we all know that Republicans believe in the free market and oppose socialist command-and-control economies. Right? Isn’t that obvious? (*cough* ObamaRomneycare *cough*.)

Now back to that other question about Krugman’s hypothesis, to answer that, we need to understand why premiums are supposed to fall. Krugman actually explains it pretty well, if you cut through his rhetoric, so I’ll quote him at length (emphasis added):

To understand what’s happening in New York, you have to start with what almost everyone at least pretends to believe: Americans shouldn’t find it impossible to get health insurance because of pre-existing conditions that aren’t their fault. Two decades ago, New York tried to deal with this by imposing community rating: insurance is available to everyone, and the price doesn’t depend on your medical history.

The problem was that this created a death spiral: young, healthy people didn’t buy insurance, worsening the risk pool, driving up premiums, driving out more relatively healthy people, etc., until you were left with a rump of very ill people paying very high rates.

How do you deal with this? Well, ideally, Medicare for all. But since that wasn’t going to happen, you improve the risk pool by requiring everyone to buy insurance — the individual mandate. And since some people won’t be able to afford that, you also offer subsidies. Voila! ObamaRomneycare!

Where does the money for the subsidies come from? Partly by reducing corporate welfare: reducing overpayments for Medicare Advantage, reducing tax breaks for very generous insurance plans; partly with new taxes on the wealthy.

And while a few people will be hurt — young, healthy individuals too affluent to qualify for subsidies, wealthy taxpayers, etc. — a much larger number of people will be helped, some of them enormously.

Does this amount to “redistribution”? Well, yes — not as an end in itself, but yes, a lot of people will be made better off at the expense of an affluent few.

So let’s sum up. Q: Why, exactly, are insurance premiums in NY supposed to fall because of Obamacare? A: Because Obamacare will force young, healthy people to purchase an insurance policy they otherwise would choose to forego in order to subsidize the costs of those who are less healthy and therefore require more health care, which solves the problem of premiums being driven up in New York by the requirement that they provide insurance to everybody, even if they are already sick, and for the same price, even if they require more care than others paying into the pool, which created the incentive for people to not buy insurance unless and until they were sick, which meant that the demand for health care among those who did buy insurance increased, which resulted in the price for insurance policies rising in order to cover the increased payouts from the insurance pool for the costs of care.

The Washington Post also does a good job of explaining it:

New York has, for two decades now, had the highest individual market premiums in the country. A lot of it seems to trace back to a law passed in 1993, which required insurance plans to accept all applicants, regardless of how sick or healthy they were. That law did not, however, require everyone to sign up, as the Affordable Care Act does.

New York has, for 20 years now, been a long-running experiment in what happens to universal coverage without an individual mandate…. The result: a small insurance market with very high insurance premiums.

For years New York has had one of the most heavily regulated insurance markets in the country. The 1993 reforms not only required insurers to accept all customers; they also mandated that insurers charge everyone the exact same price. Young or old, healthy or sick, it doesn’t matter in New York: Everyone gets the same deal.

This is great for someone who is sick and old who, in other states, might get charged a sky high rate or rejected altogether. It’s not great though for the young and healthy, who end up footing a bigger chunk of the bill for all those more expensive beneficiaries.

Now, returning to Krugman’s hypothesis, does the individual mandate under Obamacare, since it is supposed to reduce insurance premiums for individual policies in New York, prove that health care is better run under a “command-and-control” system rather than left to the free market? It should be obvious that the answer is: Certainly not! On the contrary, it is strong evidence for just the opposite. After all, Krugman is here lauding government intervention in the market to “solve” a problem that was created by government intervention in the market in the first place.

Hooray for the command-and-control economy. Three cheers for wealth redistribution. Yay for government bureaucrats, our wise and benevolent overlords, who surely know better than a free market, in which individuals engage in voluntary exchange for mutual benefit and in which prices determined by supply send a message to entrepreneurs and investors about where to direct their capital, how to more efficiently direct scarce resources towards productive ends.

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About Jeremy R. Hammond

About Jeremy R. Hammond

I am an independent journalist, political analyst, publisher and editor of Foreign Policy Journal, book author, and writing coach.

My writings empower readers with the knowledge they need to see through state propaganda intended to manufacture their consent for criminal government policies.

By recognizing when we are being lied to and why, we can fight effectively for liberty, peace, and justice, in order to create a better world for ourselves, our children, and future generations of humanity.

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