Krugman Gets it Wrong Again

In his New York Times column, Nobel Laureate Paul Krugman condemned the idea of vouchers for Medicare enrollees to purchase private insurance, arguing Medicare is more efficient than private insurance. As evidence he cites a graph showing insurance premiums rising faster than Medicare spending per enrollee. However, insurance premiums don’t tell the whole story. Out-of-pocket health care spending has fallen over the years from about 50% in 1960 to only 11% today. The more medical services an insurance policy covers, the higher the premiums. The Congressional Budget Office has calculated excess cost growth in health care spending after accounting for GDP growth, changes in demographics and the age distribution and other factors. The CBO found that the excess cost growth in Medicare spending from 1975 to 2008 was 2.5 percentage points, on average, each year. Over the same period, the excess cost growth in Medicaid spending was 2 percentage points while the excess cost growth in all other medical spending was 1.8 percentage points.

Comments (33)

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  1. Devon Herrick says:

    The Medicare Part D program is run by private insurers. Medicare Part D premiums are around 40% lower than initially projected. Most experts agree the reason is due to competition among the private plans.

  2. John R. Graham says:

    What I found frustrating in the CBO report was p.33, Table 2.1 where they reported excess growth 1975-2008, 1980-2008, 1985-2008, and 1990-2008 without breaking it into subperiods. Inspired by public duty, and being an old bond dealer who can;t resist deconstructing a yield curve, I did so at

    The resulting table showing annualized growth looks like this:

    Medicare Medicaid Other
    4.18% 3.68% 1.24% 1975-1980
    5.42% 4.00% 2.36% 1980-1985
    0.42% 1.92% 3.24% 1985-1990
    1.80% 1.00% 1.40% 1990-2008

    So, as surprised as I was to see this, the worst is behind us. Most of the excess groth occurred prior to 1985.

  3. Larry C. says:

    John Graham, thanks for the additional info.

  4. Bruce says:

    Krugman is a jerk.

  5. Paul H. says:

    Paul doesn’t know anything about health care. He proves that every time he writes about the subject.

  6. Jason says:

    I agree with Paul H. Krugman doesn’t know anything about health economics. Or health care. Or even rational thought.

  7. Devon Herrick says:

    Something else I should have addressed in the post is that insurance premiums increased at a rate faster than the inflation-adjusted cost per Medicare beneficiary due to differences in the age distribution. Over this time the Baby Boomers were causing the average age of the privately insured to rise compared to Medicare enrollees.

  8. John Goodman says:

    This post answers a lot of the back and forth that you see in the comments section Of Greg Scandlen’s Health Alert, posted below.

  9. Greg Scandlen says:

    It would be interesting to know how much Medicare + Medigap grew over time. After all, Medicare is not a stand-alone program for most people.

  10. Aaron Ginn says:

    To expand upon this subject,

    TIE had a related post.

    “the rate of increase in spending by Massachusetts private insurers outpaced that of public insurers, Medicare and MassHealth, the state’s Medicaid program.”

  11. Ethan D says:

    Devon Herrick, its as if you have never heard anything about Medicare part D other than what Paul Ryan has said to bolster his case for voucherization. 40% less than projected costs is not savings – its just a less bad deal. Moreover, these cost reductions are a function of unforeseen increased generic drug penetration, and a lower rate of enrollment. There are no lessons from MediCare Part D, except that Republicans proved they don’t care about the deficit when they are in power. But we can thank Cheney for making that clear – “Deficits don’t matter”

    To the broader point of this post, anyone who commented favorably here deserves to know the truth about the data Goodman is misrepresenting.

    Any blog called “HealthBlog” should be held to a higher analytical standard, but the commenters here clearly aren’t that demanding.

  12. Hugh says:

    John Goodman: feeling embarrassed at how thoroughly you misunderstood these figures?


  13. Peter Kropf says:

    Seems Austin Frakt responds with

    and Paul seconds Austin’s response at

    “But the usual suspects know, just know, that it can’t be true. Austin Frakt takes on one hatchet job, which relies on the also true fact that health spending outside Medicare and Medicaid has risen more slowly than Medicare spending. As Frakt points out, this number has been held down by the rising number of Americans without insurance. So the private sector has achieved “cost control” by just not providing coverage.”

    Is Krugman “Wrong Again”?

  14. fausto412 says:

    I love the internet because when someone says something contradicting what Krugman says…there is usually a take down somewhere…and it seems reasonable to me.

    what say you mr health care expert?

  15. David Lewis says:

    A detailed rebuttal here…

    And a succinct summary here, by that idiot Krugman, who doesn’t know anything about health care, and all of whose projections and predictions have been totally wrong…

    Anyone here interested in the truth… or just killing Medicare no matter what?

    (Will you publish this comment?)

  16. Andrew Chevelt says:

    You really should be ashamed of yourself for twisting the facts, Mr. Goodman. Medicare could achieve lower rates of growth too if it failed to cover everyone who is now eligible.

    Let me get this straight. Your answer to keeping health care cost low or “where they are” is to just not insure people anymore? Or if they are insured, deny them treatment which insurance companies are doing left and right anyway?

    I’m loving American “freedoms” more and more every day. We’re truly exceptional, by golly we are!

  17. Geoff Brooks says:

    Mr. Goodman, the analysis on Incidental Economist seems to demand a response from you. If you’re correct, some clarification is required. If you’re not correct, the honorable thing would be to acknowledge the error.

    Your June 14 comment shows that you read and follow up on these comments.

  18. Georgina Bailey says:

    That’s the sound of crickets. Still waiting, Mr. Goodman.

  19. Jack F says:

    Krugman’s response – “Not Wrong, Again”:

  20. Gregory Peterson says:

    Not Wrong, Again
    I’ve written recently about what should be a well-known fact: Medicare spending has risen less than premiums on private health insurance. This shouldn’t be a controversial proposition; it comes straight from the Center for Medicare and Medicaid Services health expenditure data. You can argue about why it’s happening and whether it’s sustainable, but the fact shouldn’t be up for dispute.

    But the usual suspects know, just know, that it can’t be true. Austin Frakt takes on one hatchet job, which relies on the also true fact that health spending outside Medicare and Medicaid has risen more slowly than Medicare spending. As Frakt points out, this number has been held down by the rising number of Americans without insurance. So the private sector has achieved “cost control” by just not providing coverage.

    It’s worth pointing out that this particular usual suspect is allegedly a health-care economics expert — but obviously doesn’t know and can’t accept basic evidence.

    I know many people would like to believe that we’re having some kind of rational debate here, but it just ain’t so.

  21. So Funny says:

    Thanks Gregory for posting Krugman’s comeback …

    I guess John Goodman is not responding to Krugman because he and his cronies are busy spamming their low information relatives with email showing how Paul Krugman has been proven wrong once again by the “Father of Health Savings Accounts” … LOL!

  22. tanstaafl says:

    May I add the obvious to those who correctly assert that “Krugman was right, Goodman was wrong and will not even bother to acknowledge it because it’s embarrassing”…every industrialized country with universal health insurance spends less per citizen on health care and achieves superior outcomes to the U.S. This is a fact that befuddles Paul Ryan every time he’s asked about it.

  23. Frank says:

    Goodman, I don’t think you are an idiot. I think you are a bought-and-paid-for prostitute. You should go back and read the CBO data, but that might actually yield some real analysis.

  24. politicalfootball says:

    People who think Goodman is a dope don’t understand the business he is in. They think he’s like Krugman, but the two are involved in entirely different enterprises:

    Ron Suskind discussed this years ago, in that famous conversation with a Bush aide believed to be Karl Rove:

    The aide said that guys like me were “in what we call the reality-based community,” which he defined as people who “believe that solutions emerge from your judicious study of discernible reality.” … “That’s not the way the world really works anymore,” he continued. “We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality—judiciously, as you will—we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors…and you, all of you, will be left to just study what we do.”

    On these terms, Goodman wins this exchange unless he makes the mistake of linking to, or honestly responding to, his critics.

  25. Jack F says:

    Politicalfootball, your analysis is way off the mark. While you’re correct to say that Goodman’s camp is not “reality-based”, it is also obviously wrong to say that it is “an empire” or “acting” or “creating its own reality”. What we have in the post-Bush era is a new third category: “Making Stuff Up”.

  26. Eric Adler says:

    It is beyond debate, that the cost growth per beneficiary is a better test of which system is more economical, private insurance or government insurance. It is clear that the numbers of the uninsured have grown in the US, due to loss of private health insurance, while medicare and medicaid enrollments have increased. In addition there is VA insurance which has pioneered in efficiency and effectiveness in US medical care.

    In addition, the US has had the largest cost growth in the world in medical care, compared to all other countries which have universal health insurance, but in the US the health care outcomes are no better.
    All of these facts should be well known to anyone who has tried to inform himself on the issue of health care issues.

    It is debatable whether Goodman’s neglect of the cost growth per beneficiary, and these other facts, is a case of confirmation bias, ignorance, or purposeful disinformation.

    He owes his readers a reply, if he wants to maintain any credibility at all.

  27. Ottovbvs says:

    Funny how all the Krugman haters issue the standard profound two and three word responses. Problem is according to Frakt he’s right and Goodman is misrepresenting what the numbers include. Of course this could have been accidental but….

  28. Eric Adler says:

    Greg Scandlen says:
    June 14, 2011 at 11:10 am

    “It would be interesting to know how much Medicare + Medigap grew over time. After all, Medicare is not a stand-alone program for most people.”

    It is pretty clear that private insurance, which is mostly supplied by employers has lost customers. Employers are reducing coverage, and in some cases the employed cannot afford the coverage being provided by employers. In addition, since 2007, 2 million workers have been unemployed and lost their coverage. They are not in a position to afford health insurance, and medicaid is covering many of them.

    Because of these factors, the CBO made the following comment in its report, about the chart that Goodman uses, to claim that private insurance is more efficient that of Medicare and Medicaid:

    “Consequently, the differences in excess cost growth between Medicare, Medicaid, and other health care spending should not be interpreted as meaning that Medicare or Medicaid is less able to control spending than private insurers.”

    The total expenditures are therefore not a relative measure of efficiency of the programs. While it is not perfect, the cost per beneficiary is a better measure. This has been lower for medicare than for private insurance, despite the fact that older patients need more care than the younger patients covered by private insurance.

    What is driving the overall increased cost of medical care, is the leverage of providers in determining the treatment of patients. This is causing over-treatment, as experts in the field, including Goodman have pointed out. The solution is medical care practice based effectiveness research, which is part of the Health Care Reform Act. Strangely this provision is criticized even by same conservatives who cite over-treatment as a problem. This makes no sense.

  29. Andrew says:

    Until you guys stop cherry-picking your stats, which is what this is about, Krugman doing it, you have zero cred.

    Direct measures of the effectiveness of medical care show that five-year relative survival rates for individuals diagnosed with various types of cancer are higher in the United States than in Canada, as are infant survival rates of low-birthweight babies. These successes are consistent with the greater U.S. availability of high level technology, higher rates of screening for cancers, and higher treatment rates of the chronically ill.

  30. Andrew says:

    You take out the things that have nothing to do with actual medical outcome performance, and the US is better.

    Everything in the US is expensive, which to some guys means the government should take it over, starting with healthcare because that’s super duper dupers super important and we love granny. Next I guess is blue jeans.

    As for cost, and while we are on apples-to-apples, check this chart. It’s pretty clear that the overall cost of medical care has increased by almost exactly the contribution of the government programs and insurance.

    This is like you guys claiming that we need a government run mortgage agency because people can no longer afford to buy a house with their cash, oh, wait….

  31. TallDave says:

    Actually, Frakt’s numbers don’t support Krugman either. It’s not even clear they’re using the same methodology in 2007; he just assumes that’s the case. And then there’s this.

    “No wonder the rate of increase in spending in that category is so low. It has been pushed down by the growing ranks of the uninsured”

    That seems nonsensical from several angles. How can someone who isn’t benefiting from a policy be labeled a “beneficiary?” How can someone who isn’t buying health care have any costs in the first place? Why are private noninsurance payments not fair game for comparison with Medicare?

    Anyways, everyone with an ounce of intellectual honesty and a smidgen of knowledge understands the following:

    1) The US pays more for healthcare than other countries
    2) The US gets more healthcare than other countries, though the marginal benefit of that extra healthcare is small

    But thanks to people like Krugman, we can’t even have a serious conversation about how this could be improved, because they want to pretend rationing doesn’t exist in socialized systems.

  32. David Lewis says:

    @TallDave says “they want to pretend rationing doesn’t exist in socialized systems”

    Of course rationing exists in all health care systems. No serious analyst, even on the left, denies this. It’s a law of nature — not everybody can have all the care they want when concerned — or desperate — about their health or that of their families, at least not if they can’t afford the 6-7 figures needed for extreme care.

    In fact, it’s the right wing that denies the blatant truth of economically based rationing by private insurance companies directed mostly against the lower and middle classes.

    Is rationing better done by the government? Well, that certainly has its own flaws, but it works pretty well in Medicare today. ‘Taint perfect, but not so bad and not so hard to improve in a fair way (as opposed to the grossly unfair, economically-based rationing proposed by Ryan and the Repubs.)