Krugman: We can't accept healthcare reform without cost controls

In February, Paul Krugman argued that Obama’s stimulus package was too small and that passing a second stimulus package later would be incredibly difficult politically because Republicans would argue economic stimulus failed. I agreed with his logic.

Paul Krugman’s latest begins with a (completely warranted) I-told-you-so:

[S]ome of us warned about what might happen: if unemployment surpassed the administration’s optimistic projections, Republicans wouldn’t accept the need for more stimulus. Instead, they’d declare the whole economic policy a failure. And that’s exactly how it’s playing out. With the unemployment rate now almost certain to pass 10 percent, there’s an overwhelming economic case for more stimulus. But as a political matter it’s going to be harder, not easier, to get that extra stimulus now than it would have been to get the plan right in the first place.

The point is that if you’re making big policy changes, the final form of the policy has to be good enough to do the job. You might think that half a loaf is always better than none — but it isn’t if the failure of half-measures ends up discrediting your whole policy approach.

Given Professor Nobel Prize’s supernatural ability to peer into the future, we should really pay attention to his warning against healthcare reform without a strong public (government-administered) health insurance option with the power to negotiate rates.

As usual, our legislators are trying their best to pass something that looks, smells and tastes good to ordinary Americans without touching the bottom lines of the powerful companies those legislators really work for. So we should expect a watered-down law that accomplishes about 20% of what it should. And Krugman’s warning us this would be worse than nothing:

[R]eform isn’t worth having if you can only get it on terms so compromised that it’s doomed to fail.

[T]he success of [healthcare] reform depends on successful cost control. We really, really don’t want to get into a position a few years from now where premiums are rising rapidly, many Americans are priced out of the insurance market despite government subsidies, and the cost of health care subsidies is a growing strain on the budget.

And that’s why the public plan is an important part of reform: it would help keep costs down through a combination of low overhead and bargaining power. That’s not an abstract hypothesis, it’s a conclusion based on solid experience. Currently, Medicare has much lower administrative costs than private insurance companies, while federal health care programs other than Medicare (which isn’t allowed to bargain over drug prices) pay much less for prescription drugs than non-federal buyers. There’s every reason to believe that a public option could achieve similar savings.

Indeed, the prospects for such savings are precisely what have the opponents of a public plan so terrified.

I concur (as I do with 99% of what the bearded oracle writes).

Posted by James on Sunday, June 28, 2009