John Goodman

Writers sometimes worry if a day will come when they have nothing more to say. As long as Paul Krugman is around, I will never have that worry.

Boston University professor, Lawrence Kotlikoff has suggested that Krugman return his Nobel Prize. I hope he doesn’t. As long as someone with Krugman’s professional status gets his facts wrong in column after column, and does so in an arrogant and pompous manner, attacking the integrity and hurling insults at all who disagree with him… well, there will always be a market for a writer who is able to show that the scourge of sensible people everywhere has written one more erroneous editorial.

Krugman may not always be wrong. On some economic issues he may actually be right. But when it comes to health care, he almost never misses. He is wrong 100% of the time.

In a recent New York Times column Krugman pronounced Obamacare a success before it has even been tried. Why? Because the premiums to be charged in California health insurance exchange are apparently lower than what the experts thought they would be:

“Well, the California bids are in — that is, insurers have submitted the prices at which they are willing to offer coverage on the state’s newly created Obamacare exchange. And the prices, it turns out, are surprisingly low. A handful of healthy people may find themselves paying more for coverage, but it looks as if Obamacare’s first year in California is going to be an overwhelmingly positive experience.”

I did a quick check and discovered that if a 25-year-old in Los Angeles chooses the least expensive plan offered on the California health insurance exchange, the premium will be $142 a month. Yet the cheapest plan offered on eHealth today is only $92 a month.

Aah… let’s see… Everybody thought health insurance premiums would be 100% higher. In fact, they are only 60% higher… Hooray… Break out the champagne!

I’ll come back to these price comparisons in a minute. For the moment, I would ask: What kind of an economist would celebrate an expected price decline without asking what happened to quantity or quality? This is an Econ 101 mistake.

As it turns out the health insurance to be sold in the California exchange excludes some of the best hospitals and the best doctors. Also, the fees paid to providers will not be the same as commercial insurance are paying. They will be somewhere between the commercial rates and Medicare rates. This means that people with exchange acquired insurance will be less desirable to providers from a financial point of view than people in orthodox plans. As the Los Angeles Times explains:

“People who want UCLA Medical Center and its doctors in their health plan network next year, for instance, may have only one choice in California’s exchange: Anthem Blue Cross. Another major insurer in the state-run market, Blue Shield of California, said its exchange customers will be restricted to 36% of its regular physician network statewide.

“And Cedars-Sinai Medical Center, one of Southern California’s most prestigious and expensive hospitals, said it’s not included in any exchange plans at the moment.”

Krugman points to the experience of health reform in Massachusetts in predicting how wonderful health reform is going to be:

“Massachusetts has had essentially this system since 2006; as a result, nearly all residents have health insurance, and the program remains very popular. So we know that Obamacare — or as some of us call it, ObamaRomneyCare — can work.”

But what has really happened in the Bay state? Insurance sold in the Massachusetts exchange pays doctors and hospitals only about 10% more than what Medicaid pays. And for reasons that are not entirely clear, doctors are less willing to see the newly insured (with exchange subsidies) than Medicaid patients.

The Massachusetts reformers believed that once everyone was insured, patients would go to the doctor’s office for primary care, rather than to the hospital emergency room. But in expanding the demand for care, they (just like Obamacare) did nothing about supply. The newly insured can’t go to doctors’ offices for their primary care if there aren’t any more doctors’ offices.

Here is what is happening on the ground. Traffic to hospital emergency rooms in Massachusetts is higher today than before health reform. Traffic to community health centers is almost one-third higher than it was before reform. Yet the time it takes to get care is growing. The wait to see a new doctor in Boston today is two months — the longest wait in the entire country.

On balance, the only thing that seems to have changed in Massachusetts is that patients are waiting longer. They are going to the same places to get care that they went to before. They are getting the same care from the same providers. In the process, more money is being moved around. A lot more money.

Let’s return to the subject of California premiums. Krugman links to a Johnathan Cohn New Republic column claiming that premiums on the newly created health insurance exchange will actually be lower that they are today. Yet this assertion is based on comparing premiums in today’s small group market with expected individual premiums on the health insurance exchanges. That’s not the right comparison.

Small group premiums are significantly higher than individual premiums in most states. The relevant comparison is today’s individual insurance premiums versus the individual premiums in the exchange. Exchange premiums are going to be higher.

With health reform, California premiums will be higher than they are today, but the sticker shock will not be as severe as in other states. The reason: California already has unisex rate requirements. As a result the age differential for males (60-year-old versus 20-year-old) is already close to the 3-to-1 band required by Obamacare. In states without unisex regulation, the age differential would be 6 to 1.

Still, middle-class families in California should brace themselves. The surprises in Obamacare are going to be just as arbitrary and unfair on the West Coast as they will be in the rest of the country.

— John Goodman

Original article posted on Laissez Faire Today

You May Also Like:


The Government Regulation That’s Been Killing for 50 Years

Douglas French

There are plenty of talks at Porcfest from the likes of LFC business cycle guru Robert Murphy, David Friedman (son of Milton), Yuri Maltsev, and yours truly. And for the less theoretical, there are classes like Learn to Build Your Own Black-Powder Rifle.

John Goodman

John C. Goodman is president and CEO of the National Center for Policy Analysis and author of the new book, Priceless: Curing the Healthcare Crisis. He is widely known as the "Father of Health Savings Accounts" and Modern Healthcare named him as one of four people who have most influenced the modern health care system. He received his Ph.D. in economics from Columbia University, and has taught and done research at Columbia University, Stanford University, Dartmouth College, Southern Methodist University and the University of Dallas.

  • Tom Sawyer

    Look people that need care get it when they need it regardless of insurance. If they can’t pay they go to the emergency room the premiums on those that can pay are jacked up to cover the cost or the cost over runs go directly to the govt. You know that but conveniently left that out. This system encourages small problems into becoming big problems and sure there is going to be an increase in patients and more wait times UNTIL the problem of ignoring those small problems which became big problems levels off. The other thing which is a fact is that European healthcare or better known as single payer (which the ACA is not) delivers comparable service at less cost for more people. Another point you left out is that there are many republicans that are now seeing the light and embracing the ACA. In Kentucky where it is being implemented under KYNECT one older gentlemen after reading the benefits of the program readily signed up and upon leaving remarked this plan is sure better than Obamacare. True story.

Recent Articles

Why a Strong Dollar is the Mortal Enemy of Gold and Oil

Frank Holmes

Gold and oil are down because the US dollar is up, despite all the inflationary pressures the Fed has put on it. What's going on? Today, Frank Holmes, breaks down the U.S. economy’s current direction with several important charts. Plus, he's got a mining play for you that's prospering despite the current sentiment...


Bill Bonner
Confessions of a Newsletter Man

Bill Bonner

Being a financial newsletter writer certainly has a few advantages. Namely, it affords one the opportunity to comment on the financial markets without having to take them seriously. Today, Bill Bonner looks back on what drew him to this business, and the unique and entertaining cast of characters he's met along the way. Read on...


Extra!
The Most Important Factor of the Swiss Gold Initiative

Grant Williams

The Swiss Gold Initiative has the the Swiss National Bank in a panic. Should the referendum pass, the SNB will be responsible for ensuring that 20% of its total assets are held in gold. That's an awful lot of yellow metal. Today, Grant Williams puts that number into perspective and explains how it could affect the gold market...


How Solar Power Could Heat Up Your Portfolio

Greg Guenthner

Regardless of how you feel about the "green energy movement" there is no denying that solar power is becoming more mainstream. As it closes in on price parity with conventional electricity, more and more people are turning to solar as a viable source of energy. And that's great news for solar stocks. Greg Guenthner explains...


R.I.P. Tapir (5/22/13 – 10/29/14)

Greg Kadajski

The Tapir, beloved pig-like mammal and financial machination, quietly passed away at 2:00 p.m. EST on October 29, 2014. He lived a misunderstood life and was held responsible for many things entirely out of his control. Nevertheless, he will be missed by all who thought they knew him...