The Economics of Health

You may not agree with Paul Krugman's politics -- he's a New York Times columnist famous for bashing President Bush. You may not agree with ...
by | March 10, 2006

You may not agree with Paul Krugman's politics -- he's a New York Times columnist famous for bashing President Bush. You may not agree with his conclusions about the U.S. health system -- the Princeton economist wants to move to a Canada-style single-payer system. But his current article on health care costs in the New York Review of Books is worth reading anyway.

Krugman and his coauthor Robin Wells offer a cogent summary of how we got where we are today. The most important point is that the employer-based insurance system, itself a historical accident that is basically unique to the U.S., is rapidly unraveling. In 2000, 67.7 percent of Americans under age 65 got their health coverage through their own jobs or that of a family member. That number was down to 63.1 percent by 2004 and will come down faster as health costs rise.

It makes no sense for employers to pay $10,000 a year to provide insurance for workers whose salaries may not be much more than that to begin with. The people who are cut off by their employers are likely to turn to Medicaid and other government programs.

The problem with Medicaid is not that its per-person costs are going up, but that enrollment has expanded so much in recent years.

The upshot is that governments, which already pick up more than half of the cost of health care in this country, are certain to pick up more. Anyone who is looking at Governing.com will know that Medicaid and other health programs are already busting state budgets. It's not going to get any easier.

Krugman and Wells, despite their biases, offer a good summary of all this.