Monday, June 13, 2005

Is there an economist in the house?
This, from Paul Krugman, doesn't seem right to me:

Medicare has much lower administrative costs than private insurance. The reason is that single-payer systems don't devote large resources to screening out high-risk clients or charging them higher fees. The savings from a single-payer system would probably exceed $200 billion a year, far more than the cost of covering all of those now uninsured.
As I understand medical insurance, the reason private insurers try to screen out high-risk clients and either not cover them, or at the very least charge higher rates, is because—well—the risk is higher. These people are, on average, going to cost more to insure because they are going to need more "routine" care. It's nice to say that the administrative costs of figuring out who these people are is more than the cost of insuring them, but I'm not sure it's true.

Sure, you'll save money by not needing the staff to locate these people—but if that cost didn't outweight the cost of actually providing care for them at the same rate, would private insurance companies really go to the trouble?

It seems to me that Krugman is doing some funny math here, but I can't quite put my finger on it. Would anyone who did decently well in Economics like to help me out here?

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