Paul Krugman writes on his blog that we require the government to create a functioning market for health insurance, that without government stepping in to fill this void in the market, it wouldn’t exist.
No, I’m not making this up. His post is titled “It Takes A Government (To Make A Market)”, and he argues that the so-called Affordable Care Act, a.k.a. Obamacare, “is creating a truly functioning market in nongroup insurance” where, this argument logically necessitates, one didn’t exist before. He writes:
Until now there has been sort of a market — but one that, as Kenneth Arrow pointed out half a century ago, is riddled with problems. It was very hard for individuals to figure out what they were buying — what would be covered, and would the policies let them down? Price and quality comparisons were near-impossible. Under these conditions the magic of the marketplace couldn’t work — there really wasn’t a proper market.
The problem with this is Krugman wants his readers to conclude that a free market can’t work in health care, that it is “riddled with problems”, that we require heavy government intervention to control this market. But was there a free market in health insurance half a century ago?
No, there wasn’t. The market was “riddled with problems” precisely because the government had intervened. John C. Goodman explains here and here how government regulations incentivized the third-party payer system created by BlueCross in the 1930s, a system in which “a form of coverage in which the payer (third party) pays a provider (second party) to deliver a service to a patient (first party)”, which differs from regular insurance that consisted of a two-party contract.
With the ACA, however, insurers operate under clear ground rules, with clearly defined grades of plan and discrimination banned. The result, suddenly, is that we have real market competition.
But by “clear ground rules”, he means standardized benefit packages, with the government dictating that insurance providers reduce the variety of packages available for consumers to choose from, thus effectively outlawing competition in this regard. They all have to provide the same or similar coverage. In Orwellian fashion, Krugman describes this command-and-control intervention in the economy as “real market competition” in “a properly set up market system”.
Krugman offers as evidence of how wonderful the system will be under Obamacare a report from the Kaiser Family Foundation. He writes, “It definitely looks as if there will be a mild ‘rate shock’ — in the right direction.” He quotes the report stating: “While premiums will vary significantly across the country, they are generally lower than expected.”
But what does that mean? Remember that Obama promised that everyone’s yearly premiums would be reduced by an average of $2,500 per family under the Act. Nancy Pelosi said “everybody will have lower rates and better care” under Obamacare. White House spokesman Jay Carney said, Obamacare “addresses the costs and lowers the costs, long-term, of health care”. Is this what Krugman means when he says premiums are going “in the right direction”? Is “the right direction” down?
Premiums will continue to increase. The Kaiser Family Foundation just found that they would increase at a lower rate than previously expected. So according to Paul Krugman, “the right direction” for insurance premiums to be going is still up. So here’s to continually increasing premiums. Hooray.
Interestingly, turning to the KFF report, it notes that
The current individual insurance market is highly concentrated, with a single insurer dominating at least half the market in 30 states and the District of Columbia.
Well, which insurer is that? They don’t say. But we can guess. And there is a footnote. It’s to another KFF report, on the competitiveness in the health insurance market. And if you turn to that report, it points out that
Blue Cross Blue Shield plans have historically operated under different rules from other insurers in some cases. While substantial variation exists, however, the current insurance markets in many states are highly concentrated with only modest competition.
Which brings us back to Goodman’s explanation of how Blue Cross Blue Shield was able to get such a competitive edge in this market because of privileged government regulations helping it to do so.
So, again, we see Paul Krugman hailing government intervention for supposedly fixing the market that doesn’t function properly because it is too free, when the fact is that the market is so messed up in the first place precisely because of government intervention.
This is the whole premise of Obamacare, that we need even more government intervention to solve the problems created by previous government interventions.
Krugman concludes with the remark:
But in this universe, conservatives claim that creating a real market for health insurance, and making sure that everyone can afford it, is the moral equivalent of slavery.
It is the moral equivalent of slavery, by definition. I explain that here, as well as how Obamacare is designed to interfere in the market to “solve” problems created by … government interfering in the market.