Skip to content

Paul Krugman Stars as the Quacky Witch Doctor in Fantasy Sex, Wild Economic Lies, and the Mad Mad Medical Monopoly Videotape

October 22, 2009

Paul Krugman Stars as the Quacky Witch Doctor in:

“Fantasy Sex, Wild Economic Lies, and the Mad Mad Medical-Monopoly Videotape”

Dr. Paul Krugman, prominent liberal economist, steadfast tireless advocate of medical reform, argues that universal coverage is affordable.

“The truth is that we can afford to cover the uninsured. What we can’t afford is to keep going without a universal health care system.” (A Healthy New Year, 1/1/07, New York Times)

Dr. Krugman worries about a middle class which has seen its wages stand still for a generation. He wonders: What could we do to improve the lives of the middle class?

“An effort to shore up middle-class health insurance, paid for by a rollback of recent tax cuts for the wealthiest Americans — something like the plan proposed by John Kerry two years ago, but more ambitious — would be a good place to start.” (Progress or Regress? 9/15/06, NYT)

1 medical care percent of budget v housing food clothing_resize 200

I have read many of Dr. Krugman’s stories and postings on medical reform from the end of 2005 forward. I have edited his argument into one full and complete picture. I cite the headline and date of publication where he is quoted or paraphrased.


His argument for covering children is eminently reasonable to any and all with ears willing to hear. When you realize that children should be covered, you may reasonably ask: Should adults be covered too? Nobody questions a child’s right to an education from grades K through 12. Why shouldn’t medical care be guaranteed to all children of the wealthiest country in the world?

“A child who doesn’t receive adequate health care,” says Dr. Krugman, “like a child who doesn’t receive an adequate education, doesn’t have the same shot — he or she doesn’t have the same chances in life as children who get both these things.” (A Socialist Plot, 8/27/07, NYT)

The pundits and the prognosticators from the right are deaf and dumb to this basic argument. I have never seen one conservative address this fundamental issue — of the logical equivalence of public education and public medicine — in approximately 300 stories (by Dr. Krugman and others) on medical reform I reviewed to prepare this posting.

Dr. Krugman, a recent Nobel laureate in economics, a star columnist at the New York Times, who blogs as “The Conscience of a Liberal”, has been persistent and may deserve to be called the leading advocate from the left of medical reform.

“The truth is that there’s no difference in principle between saying that every American child is entitled to an education and saying that every American child is entitled to adequate health care. It’s just a matter of historical accident that we think of access to free K-12 education as a basic right, but consider having the government pay children’s medical bills ‘welfare’, with all the negative connotations that go with that term.” (A Socialist Plot, 8/27/07, NYT)

pay how much % of GDP_resize 200%

“We offer free education, and don’t worry about middle-class families getting benefits they don’t need, because that’s the only way to ensure that every child gets an education — and giving every child a fair chance is the American way. And we should guarantee health care to every child, for the same reason.” (A Socialist Plot, 8/27/07, NYT)

Does anybody argue with this?

If we are the only wealthy country in the world to deny all citizens medical care, shouldn’t we consider ourselves barbaric for forcing the poor, including their children, to subject themselves to a system which automatically categorizes them as something less than the rest of us? Does anybody believe they receive the same care as a standard-issue holder of medical insurance from a major carrier?

Why is it acceptable that 50 million persons are in a limbo without a formal policy and dependent upon emergency rooms and charity and out-of-pocket payments and the grace of God? Haven’t we made our country less than all of those other countries which have given every citizen medical care–some of whom have managed to provide excellent and equal care to all citizens regardless of financial standing?


How do you argue with Dr. Krugman’s point when he faults conservatives far having little or no commitment to universal coverage?

“What’s still missing, however, is a sense of passion and outrage — passion for the goal of ensuring that every American gets the health care he or she needs, outrage at the lies and fear-mongering that are being used to block that goal.” (Republican Death Trip, 8/14/09, NYT)

witch doctor green eyed mask

“After all, every other advanced country offers universal coverage, while spending much less on health care than we do. For example, the French health care system covers everyone, offers excellent care and costs barely more than half as much per person as our system.” (Help Is On the Way, 7/6/09, NYT).

Instead of offering care to all, insurance companies are “working harder than ever at identifying people who really need medical care, and ensuring that they don’t get it. In the past, they mainly concentrated on screening out applicants likely to get sick. Now, it seems, they’re also devoting a lot of effort to finding pretexts for revoking insurance after they’ve already granted it. They typically do this by claiming that they weren’t notified about some pre-existing condition, even if the insured wasn’t aware of that condition when he or she bought the policy.” (Insurance Horror Stories, 9/22/06, NYT)

Instead of money going to medical attention for the sick, our insurance companies are avoiding people who need coverage “so a large fraction of premiums in the individual market goes not to paying medical bills but to bureaucracies dedicated to weeding out ‘high risk’ applicants.” (Gold Plated Indifference, 1/22/07, NYT) We take money from care for the sick, and use it to deny people care: How could anybody agree, in an ideal sense, with this priority system?

As a fix, Dr. Krugman is inclined toward the simplicity of a single-payer plan for all. If a single-payer plan for all were adopted, all or almost all private medical insurance companies would go out of business. The private insurance market would be a very minor factor in the overall scheme of things.

1 gdp cost national_Health_Expenditures_as_a_Share_of_GDP__1980-2040

“The clean solution to this problem is for the government to provide insurance to everyone.” (Notes on 1/22 column: Gold Plated Indifference, 1/22/07, NYT).

“Medicare manages to spend much more of its funds on medicine, as opposed to other things, than private insurers.” (Death by Insurance, 5/1/06, NYT) With the change, according to Dr. Krugman, all can be covered. The price would actually be less, he says, than our current total outlay.

“If you do the math, it becomes clear that covering everyone under Medicare would actually be significantly cheaper than our current system.” (Death by Insurance, 5/1/06, NYT)


The arguments against the use of a free market in medical insurance were best made, according to Dr. Krugman, by Kenneth Arrow in his paper “Uncertainty and the Welfare Economics of Health Care” (The American Economic Review, December 1963). The gist of the paper, according to Dr. Krugman, is that “health care can’t be marketed like bread or TVs.”

He describes two distinct aspects of health care, as defined in the Arrow paper, which make it unworkable as a free-market business.

“One (special aspect of medical care) is that you don’t know when or whether you’ll need care — but if you do, the care can be extremely expensive.” Because none of us can afford major medical costs out of pocket, “this tells you right away that health care can’t be sold like bread. It must be largely paid for by some kind of insurance. And this in turn means that someone other than the patient ends up making decisions about what to buy” (my emphasis). (Why Markets Can’t Cure Healthcare, 7/25/09)

I believe Dr. Krugman is saying that since the consumer can’t know what he or she should purchase in a medical insurance package, as they don’t have experience dealing with major medical events, they can’t make an educated decision about what to buy. Thus “choice is nonsense when it comes to health care.” (Why Markets Can’t Cure Healthcare, 7/25/09, NYT). The buyer is ill equipped to make the decision.

Dr. Krugman also reminds us that medical care is as different for each person who must use it as are the number of diseases which may require treatment.

“The second thing about health care is that it’s complicated (my emphasis), and you can’t rely on experience or comparison shopping. (‘I hear they’ve got a real deal on stents over at St. Mary’s!’).” (Why Markets Can’t Cure Healthcare, 7/25/09)

2 compensation growth and net of health costs

Someone other than the buyer makes a decision about what is going to be purchased in medical insurance. The myriad of treatments which might be required make it a very complicated decision. You don’t know what you are buying, somebody else chooses it for you, and you don’t know how to compare the policies of different sellers because it’s too complicated to understand what has been chosen for you. This means that “health care just doesn’t work as a standard market story.” (Why Markets Can’t Cure Healthcare, 7/25/09, NYT)


He allows that socialized medicine, best defined as a state both paying for medical services and providing medical services, or single-payer medicine, a partially socialized plan, with the state paying private hospitals and privately-employed doctors; that either of those two choices are not the only way forward.

Of all of the choices which have been tried, none of the choices, according to Dr. Krugman, would be described as being “based on the principles of the free market, for one simple reason: in health care, the free market just doesn’t work. And people who say that the market is the answer are flying in the face of both theory and overwhelming evidence.” (Why Markets Can’t Cure Healthcare, 7/25/09, NYT)

The dynamics of medicine work against a free market because, to an insurance company, paying for your care is a “loss” or “medical costs.” They can make money by denying as many claims as possible and by refusing to cover people who may need care. Insurance companies spend time, effort, and money to deny claims and deny coverage and rescind coverage—creating much greater administrative costs than a single-payer system. A private insurer, therefore, “spends a lot of money on socially destructive activities.“ (Why Markets Can’t Cure Healthcare, 7/25/09, NYT)

pay how much three charts usa v other countries

If regulation requires that insurance companies cover those with pre-existing conditions, the private insurance company will fail because “an insurance plan offered to everyone at the same rate would be a great deal for relatively sick people, a poor deal for the healthy. So one of two things happens to private insurance. Either plans go into the ‘adverse selection death spiral,’ as sick people flock in, driving up rates, driving out more healthy people, and so on. Or insurance companies spend a lot of the money they receive in premiums screening out “high-risk” clients, so that the system has huge overhead and the neediest cases are excluded.” (Gold-Plated Indifference, 1/22/07, NYT).

Insurance companies are damned if they do cover those who have health conditions, and they are damned if they don’t cover people who need insurance.

Conservatives continue to insist a free market can cure healthcare, says Dr. Krugman, even though there is no evidence of such success.

“In a way, this is the flip side of the persistent belief that the free market can cure healthcare, even though there are no places where it actually has; people also believe that government provided insurance can’t work, even though there are many places where it does — and one of those places is the United States of America.” (Why Americans Hate Single-Payer Insurance, 7/28/09, NYT)

“So when you hear people like (Representative Jim) DeMint — or conservative economists — preach the wonders of a market-based health care system, bear in mind that this is what it would look like: an America in which nobody who has ever had a major health problem, or had a minor health problem that for some reason bothers the insurance company, can get coverage. Believing that it would turn out otherwise is the triumph of ideology over experience.” (DeMint Offers a Teachable Moment, 7/27/09, NYT)

Dr. Krugman presents and attacks the primary argument from conservatives about their approach to the reform of medical care. The gist of the conservative argument is that medical costs rose high and fast because people who use medical care pay little or nothing for what they receive. Insurance covers the bill. So the medical-care user doesn’t care about getting a good deal or shopping around. The bill is somebody else’s problem.

cost of medical care family four

“What conservatives in the ‘consumer-directed’ health movement believe, however, is that the big problem is ‘moral hazard’ — people consume too much medical care, because someone else pays for it.” (Additional Notes on 1/22 column, “Gold-Plated Indifference”, 1/22/07, NYT)

“What’s driving all this is the theory, popular in conservative circles but utterly at odds with the evidence, that the big problem with U.S. health care is that people have too much insurance — that there would be large cost savings if people were forced to pay more of their medical expenses out of pocket.” (Gold-Plated Indifference, 1/22/07, NYT)

How could anybody make this argument when looking at a major medical event? Are the conservatives saying that a person undergoing cancer treatment takes inappropriate advantage of their insurance because they pay nothing beyond their annual deductible? Is a person who has fallen down the stairs taking advantage of their insurance company because their doctor recommends three days in the hospital – none of which the patient will pay for? It’s unreasonable. It’s ridiculous. The moral hazard argument has a place in medical reform, but not as the center of what needs to change.

The conservative argument on moral hazard makes sense when you analyze the patient history of a hypochondriac. It makes little sense for the patient who has fallen down the stairs or contracted cancer. For major medical events the moral-hazard argument is a joke. We know it’s a joke because this has not been a problem with countries whose medical system works and works well with modest co-payments. You can’t make up cancer to get free cancer care.


Dr. Krugman also recognizes, in a matter crucial to the theme here, that politicians are blocking reform because the medical insurance market is controlled by monopolistic competitors. They rule supreme over state-wide markets.

“The essential point here is that Republicans don’t want any competition for private insurers,” says Dr. Krugman. “It’s not about free-market principles — in many cases, insurers are in effect monopolists. It’s about protecting the vested interests.” (Republicans Who Say Ni, 6/23/09, NYT)

Democratic politicians too are beholden to high-power local medical insurers.

“In fact, I may have a new hypothesis about the political economy of the health care fight. One thing that’s obvious, if you look at the balking Democrats I chided in today’s column, is that almost all of them come from states with small population. These are also, by and large, states in which one or at most two private insurers dominate the market. So here’s a suggestion: while the opponents of a private public plan say that they’re trying to defend market competition, what they’re actually doing is defending lucrative local monopolies.” (Competition Redefined, 6/22/09, NYT)

This is a point worth repeating. It moves to the heart of what should be the debate.

The hypothesis of this paper: Fifty state-wide monopolies in medical insurance have ruined competition. The monopolistic medical insurers maintain illegal price controls by colluding with monopolistic hospitals in a “bilateral monopoly”. Together the insurers and the hospitals create high prices and limited supply. It is a textbook case of monopoly. Imposing disruptive new regulation can break both of these monopolies. Combined with litigation reform, high deductibles, and outsourcing (think “Bypass vacations to India”, for example), we can reduce medical costs by 30% to 50%. This plan will radically transform our competitiveness in all fields and start a new golden age in wage growth for all classes.

For Dr. Krugman, the answer for overturning the local monopolies is the public option. The public option is defined here as a medical insurance plan backed by the federal government.

“The truth is that the notion of beneficial competition in the insurance industry is all wrong in the first place: insurers mainly compete by engaging in ‘risk selection’ — that is, the most successful companies are those that do the best job of denying coverage to those who need it most.” (Competition, Redefined, 6/22/09, NYT)

cost premium growth versus wage growth 1999 2007

He cites Arkansas as an example of a failed market which needs the public option to introduce competition.

“Arkansas is in effect a one insurer monopoly state, with no competition at all — unless a public plan is created.” (Competition Redefined, 6/22/09, NYT)

Medical insurance issued by the federal government will guarantee real competition for those state monopolies.

“And those who prefer not to buy insurance from the private sector would be able to choose a public plan instead. This would, among other things, bring some real competition to the health insurance market, which is currently a collection of local monopolies and cartels.” (Help Is On the Way, 7/6/09, NYT)

Dr. Krugman accurately predicted, more than 2.5 years ago, the fight we now have about the public option.

“Conservatives will fight fiercely against these moves. They say they believe in competition — but they’re against competition that might show the public sector doing a better job than the private sector. Progressives should support these moves (for a public option) for the same reason. Ending the subsidies to middlemen (insurance companies), in addition to saving a lot of money, would point the way to broader health care reform.” (First, Do Less Harm, 1/5/07, NYT)


A prime target and preoccupation for Dr. Krugman is administrative expenses. A public payer, he argues, has an inevitable advantage in the contest for low administration costs.

“Medicare manages to spend about 98 percent of its funds on actual medical care.” (Death By Insurance, 5/1/06, NYT)

He cites as an example of wasteful spending a program in Medicare in which seniors use government funds to buy a private-insurance policy.

“Medicare Advantage (the private insurance program in Medicare) now costs 11 percent more per beneficiary than traditional Medicare.” (First, Do Less Harm, 1/5/07, NYT)

The record on administrative costs of Medicare is very favorable, and, according to Dr. Krugman, points us in the right direction for controlling costs.

“Medicare, which is a universal health insurance program for older Americans, spends less than 2 cents of every dollar on administrative costs, leaving 98 cents to pay for medical care. By contrast, private insurance companies spend only around 80 cents of each dollar in premiums on medical care; much of the remaining 20 cents is spent denying insurance to those who need it.” (Insurance Horror Stories, 9/22/06, NYT)

Dr. Krugman is especially enthusiastic about the success and efficiency of the Veteran’s Administration, which practices a socialist model of medical care. The government pays the bills, owns the hospitals, and employs the doctors and nurses.

“The secret of its success is the fact that it’s a universal, integrated system. Because it covers all veterans, the system doesn’t need to employ legions of administrative staff to check patients’ coverage and demand payment from their insurance companies. Because it’s integrated, providing all forms of medical care, it has been able to take the lead in electronic record-keeping and other innovations that reduce costs, ensure effective treatment and help prevent medical errors.” (Health Care Confidential, 1/27/06, NYT)

At the VA, their only job is to take care of veterans. At a medical insurance company, one of their jobs is to make money. This means the person who needs care and the company paying for care have different goals. When an insurance company pays for treatment, they incur an expense. They make more money by denying treatment.

“This problem is made worse by the fact that actually paying for your health care is a loss from an insurers’ point of view — they actually refer to it as ‘medical costs.’ This means both that insurers try to deny as many claims as possible, and that they try to avoid covering people who are actually likely to need care. Both of these strategies use a lot of resources, which is why private insurance has much higher administrative costs than single-payer systems. … this means that private insurance basically spends a lot of money on socially destructive activities.” (Why Markets Can’t Cure Healthcare, 7/25/09, NYT)


Because the free market is a failure in medical insurance — because private insurers have high administration costs; because they have an incentive to deny claims when care was ordered by the doctor; because they try to rescind coverage following a major medical event; because they deny coverage to applicants if the person has past health problems; because insurers hide behind a complex myriad of legalese which is a medical care policy; because someone other than the buyer chooses what is included in the policy; because the complicated package of rights sold in a policy cannot easily be compared to the complicated package sold by another carrier; because all these failures are built in to a free market for medical insurance — the right way forward, according to Dr. Krugman, is a plan which embraces the power and simplicity of a state-run program.

pay how much gdp to medicine

“It’s very hard to regulate the insurance companies into providing the kind of service we want. The problem here is that this is one of those cases where market incentives are, in a fundamental sense, at odds with social goals; the invisible hand in this case happens to be on the wrong side. … insurance companies are in the business of trying to pay as little as they can. Rather than trying to bully them into not acting in their own interests, why not simply provide insurance directly from the government?” (Insurance Horror Stories, 9/22/06, NYT)

A state-centered plan, for this paper, is a liberal plan. A liberal believes in using the power of a federal or state government department to solve a problem like medical insurance. It very logically attaches itself to the enormous authority which a state body holds. A liberal is a statist, meaning that they want to use the power of the state. A conservative is an individualist, meaning that they want to give priority to an individual and their right to make decisions.

A conservative plan designs reform, for medical care or any policy, around an individual’s power to control decision-making authority. It especially emphasizes the freedom to choose from different alternatives – to choose between competitors. This basic dynamic is why you will hear, in the arguments of conservatives, the words “freedom” and “competition” and “choice”. These are not abstractions. They are basic requirements for a conservative policy.

In this summary of liberal and conservative, you see the clash of ideas which raises great anger from both sides. The argument in its simplest form is between the priority of state power versus the priority of individual choice. From the conservative perspective, state power is the most dangerous force in human affairs. This conservative prejudice derives most importantly from the human rights record of statist governments in the 20th century. Approximately 100 million persons were murdered by their own government in statist regimes.

The USSR and China committed the vast majority of those murders. Any liberal has to live with and accept this murder record as the potentially dangerous aftermath of embracing state power. Any conservative may say that they will always reject liberalism based upon this violent statist record (You can think for yourself about what it means for somebody to have this history as a part of their philosophy and to call themselves “The Conscience of a Liberal”?).

Currently in our war of ideas between conservative and liberal, the public option is a starting point for creating a single-payer medical insurance system. By definition the public option is anti-conservative because if it leads to single payer, then the individual has no choice about who will insure their medical coverage.


The public option, according to Dr. Krugman, is an intermediate stepping stone capable of some day leading to a single-payer system. He recalls the argument which created the public option. It is a compromise. The single-payer system represents the true goal.

insurance type of coverage

“Also, and importantly, the public option offered a way to reconcile differing views among Democrats. Until the idea of the public option came along, a significant faction within the party rejected anything short of true single-payer, Medicare-for-all reform, viewing anything less as perpetuating the flaws of our current system,” wrote Dr. Krugman (Obama’s Trust Problem, 8/21/09, NYT). “The public option, which would force insurance companies to prove their usefulness or fade away, settled some of those qualms.”

1 medicare medicaid projected federal spending

The embrace of state power is arguably a means of controlling costs, both because it will be akin to public plans like Medicare, with its low administration costs, and also because it will force insurance companies to meet or beat the terms offered in a public option.

“One purpose of the public option is to save money. Experience with Medicare suggests that a government-run plan would have lower costs than private insurers; in addition, it would introduce more competition and keep premiums down.” (Obama’s Trust Problem, 8/21/09, NYT)

Dr. Krugman’s first choice is a Medicare-like system for all—a single-payer system in which the government pays all the bills. The higher priority for Dr. Krugman is universal care, whether it is configured around a government-insurance-for-all policy, or around private insurance companies selling competing policies.

“In an ideal world, I’d be a single-payer guy,” says Dr. Krugman, expressing his preference that all private insurance companies be closed to solve medical reform. “But I see the chance of getting universal care, imperfect but fixable, just a couple of years from now. And I want to grab that chance.” (Why Not Single Payer, 10/7/07, NYT)

Dr. Krugman is attracted to the simplicity of the single-payer, and outlines the broad reform which liberals should seek.

“The generic Demoplan, which basically follows the template laid down by John Edwards, involves four moving pieces: community rating, requiring that insurance companies offer insurance to everyone at the same rate regardless of medical history; a mandate, requiring that everyone have insurance; subsidies to help lower-income people pay for insurance; and public-private competition, in which people have the option of buying into a plan run by the government. The alternative would be single-payer, aka Medicare for all: a payroll tax on everyone, and a government insurance program for everyone. Wouldn’t that be simpler, easier to administer, and more efficient?” (Why Not Single Payer, 10/7/07, NYT)

uninsured populationHe speaks with deep enthusiasm of the Veterans Health Administration, its socialist model, and against “President Bush’s unrealistic vision of a system in which people go ‘comparative shopping’ for medical care the way they do when buying tile.” (Health Care Confidential, 1/27/06, NYT)

“It’s very hard to regulate the insurance companies into providing the kind of service we want. The problem here is that this is one of those cases where market incentives are, in a fundamental sense, at odds with social goals; the invisible hand in this case happens to be on the wrong side. As a society we — at least, most of us — don’t want our fellow citizens to suffer from lack of medical care when they are the victims of acts of God, like a tumor in the jaw of a child. But insurance companies are in the business of trying to pay as little as they can. Rather than trying to bully them into not acting in their own interests, why not simply provide insurance directly from the government?” (Insurance Horror Stories, 9/22/06, NYT)


And What Has Been the Consequence Of It?


We now know the practice of insurance companies “devoting a lot of effort to revoking insurance after they’ve already granted it” (Insurance Horror Stories, 9/22/06, NYT) is on the way out — if reform passes. Rescinding insurance will be outlawed. It has to be part of any reform.

We will eliminate, in a line item, “bureaucracies dedicated to weeding out ‘high risk’ applicants.” (Gold Plated Indifference, 1/22/07, NYT). Every American will have access to medical insurance regardless of health.

government policy spending

Access is a privilege which confers a new responsibility. It must be both a universal right and a universal obligation. If everybody is insured, the burden is widely spread. Does anybody argue that spreading the burden among 300 million persons will increase the risk of issuing an individual coverage? The more we have covered, the better we can cover large claims.

Universal coverage negates a favorite argument of conservatives. They are outraged that people who are sick should be allowed to buy insurance. We can cure that outrage. If everybody is covered, that means the sick are covered too. I think all of us want that if we think about it, and if we know it’s possible. I can assure the most libertarian reader that it is very possible, and we don’t need a state actor controlling the action.

Many great countries have great universal plans including such high achievers as the Japanese, the Germans, and the Swiss.  Why do we ignore their accomplishments? Why don’t we demand the universal coverage that they have? Why don’t we want a system that never locks anybody out? The simple plan is the best.

We don’t know it’s easy to do. We don’t know that others have done it. They have. We are dumb if we don’t do it too.


The definition of health insurance will change after reform. We are all obliged to pay for and we are all granted the privilege of holding insurance. And we will all hold an outstanding policy. Is that good enough for my liberal readers?

who pays pays what

We can create an outstanding new world of medical care if these changes are made. When the ugly practices of insurance companies are outlawed, they will, paradoxically, be freed to pursue a more important agenda–How to provide effective coverage.

The changed regulation of insurance companies must encourage them to provide superior service at the lowest cost. Outlaw the practices of rescinding coverage, of denying recommended  procedures, of refusing coverage because of pre-existing conditions — which everybody’s version of reform does — and the new question for each insurance company is: How do we provide the same coverage at a lower price? How do we get the buyer to choose us?

After reform, a long-standing criticism from Dr. Krugman may no longer apply.

“Insurance companies are in the business of trying to pay as little as they can.” (Insurance Horror Stories, 9/22/06, NYT)

It may be very true now. And insurance companies will always want to control costs. That’s the most important job they have. It’s why we need them. If we create a generous uniform comprehensive coverage package for each and every individual, and such a requirement is critical, then a funny thing will happen: Insurance companies will try to do a better job than each other. Why?

With mandatory universal coverage, insurance companies will be competing for an enormous $2.4 trillion market of 300 million individuals with a massive revenue footprint. I believe it is the biggest industry in the United States. It must be close to it. They can’t attract clients by screwing them. They have to do a good job to attract new business and keep their current clients.


It may no longer be true that “market incentives are, in a fundamental sense, at odds with social goals; the invisible hand in this case happens to be on the wrong side.” (Insurance Horror Stories, 9/22/06, NYT)

With good new regulations we will make the following changes:

  1. Your insurance cannot be cancelled.
  2. Your insurance request cannot be denied.
  3. Your insurance must always be in place and active.
  4. Your insurance policy will be comprehensive.
  5. Your insurance will be paid for (don’t know how to do this yet).


If you outlaw the socially destructive practices, and enforce these requirements, then the insurance companies either follow the law or they get sued to high heaven and go out of business. If they make their customers unhappy, their customers will go somewhere else. Contrary to Dr. Krugman’s opinion, the reputation of insurance companies will be of great importance once universal coverage is in place.

Multiple-choice from different competing carriers is the essential missing ingredient under a single-payer system – which is the type of system Dr. Krugman wants. Where do you go if the single-payer fails you? If it’s a single payer, there is no place else to go. You’re trapped. You have no choice. Does the fear of having no choice help you make sense of the anger at public meetings?  That is just one of their supportable concerns. If that “trap” inspires their anger, it is intelligent anger. Who wants to be trapped with only one choice?

Here is the critical question for liberal critics: If everybody holds a comprehensive medical insurance policy, do you want each person to be able to choose from 10 different companies who promise to honor that policy? Or do you want a single-payer who you have to use to honor that policy? If you want 10 choices, then you are against the public option. If you want one choice, you are for the public option.


In a world of 300 million customers, all holding the same comprehensive coverage, the performance of insurance companies will become widely known and scrutinized and talked about and referred to in the same way we refer to the ranking of colleges.

The ‘adverse selection death spiral,’ which Dr. Krugman described as dooming private insurance to failure; there is no such thing when all are covered. Swiss insurance companies, for example, handle this issue by cross-insuring each other for hold outs who sign up for insurance when it’s time for a major medical-care event. Since 99% of the Swiss hold insurance, it’s not a major problem.

sexliesvideo poster

Private insurance companies in countries with universal coverage do very well for themselves and their clients. The whole controversy of pre-existing conditions doesn’t exist because everybody’s covered. Are there any geniuses who prefer our system which doesn’t cover the sick over their system which does cover the sick?

You will actually find quite a few conservatives defending our current practice. The poor fools don’t have any idea what they are talking about.


The administrative cost advantage — Dr. Krugman’s favorite argument in favor of a state-centered solution to medical care — that advantage goes away when regulation outlaws the practices which are expensive for private insurers to administer.

“Medicare manages to spend much more of its funds on medicine, as opposed to other things, than private insurers.” (Death by Insurance, 5/1/06, NYT)

This statement should be null and void if the insurers cannot decline coverage for pre-existing conditions and if insurance companies cannot rescind coverage when somebody gets sick. Those are the expensive administrative jobs insurance companies pay for now. And those expensive jobs are going away under everybody’s version of reform.


Dr. Krugman proved markets don’t work in medical care by relying on two arguments of Kenneth Arrow.

1. Someone other than the medical insurance buyer decides what is purchased (“… someone other than the patient ends up making decisions about what to buy” (Why Markets Can’t Cure Healthcare, 7/25/09, NYT); and

2.The product being purchased is so complicated that one offering cannot be easily compared to the other (“… it’s complicated and you can’t rely on experience or comparison shopping.” (Why Markets Can’t Cure Healthcare, 7/25/09, NYT)

Medical reform may defeat these free-market failure-makers by requiring a standard comprehensive package of coverage. By making everyone carry a robust package, buyers will, for the first time, be easily and obviously capable of comparing one insurance company to the next. Comparison shopping is simple and easy.

Yet Dr. Krugman made the opposite argument just this summer. He said that comparison shopping is impossible in medical insurance. He is not arguing about the system we are creating to honestly compare different reform alternatives. He is arguing against the future role of private insurance by sticking private insurance with its current failures in the old system.

He wants to guarantee that private insurance companies cannot fix their mistakes. If you rely upon his column and his honesty, you will be sure to believe that private insurance cannot work, but you will have been mislead.


Since a standard comprehensive package must be provided by all sellers of insurance, reform mandates a critical change which ensures exactly what Dr. Krugman says the market cannot ensure. True, the buyer will not pick the package of what is covered — that will be picked by legislators. Because it will be a comprehensive package, however, it doesn’t matter if the individual doesn’t pick out what is covered.

In our new world, buyers will quite easily be able to compare what five or ten or 30 sellers offer. They will offer and sell the same standard comprehensive package, just as they do in Japan or Switzerland, where reputation and performance are essential for the survival of private insurance companies.

The generous coverage which Dr. Krugman wants for all holders of insurance–which is to say, the generous “comprehensive package” which Dr. Krugman has argued in favor of for years–the universality of that bundle of rights will make comparison shopping easy, smart, and simple.

Something else will happen too. Reform must require that we collect detailed statistics about all of the work a private insurer does. With the data we will judge and rank private insurers (See nearby the opinions of leading money manager Martin Weiss on good and bad insurance companies.). Health care quality is easily measured, and as data is collected on the different providers, and they excel or fail in their obligation, a competitive market will emerge with winners and losers. They will be motivated to excel, not to deny.

krugman insurance companies not all the same

The most important data point we will collect: “Are you happy with your insurance company?” And the second most important: “Did your insurance company make it difficult for your doctor to perform recommended procedures?”

The policy holders will decide who gets the business; which is what a conservative reform of medical insurance requires. If we go to a public-option system, we may eventually have only one place to go for insurance, and that means we can’t change plans if the public single-payer plan does a bad job.

Why will we have only one place with a public option? It is impossible for a private company, in my opinion, to compete, in the long run, with the federal government. Obviously liberals don’t care about that, or they say they don’t. If they don’t care, then they don’t care about what we know about how to make an industry run well. If they don’t care about what we know about competitive markets, why should anybody take them seriously?


Introducing a standard comprehensive package deletes and denounces the selfish arguments of conservatives who say the buyer of insurance should be able to pick and chose what they want covered and pay for nothing else. They live in a flat-earth world and are dumb to the stupendous opportunity which private insurers will be given if every person is covered and every person is covered with a comprehensive package.

Dr. Krugman is right about criticizing free markets when there are a thousand sellers and a million offerings. Reduce the offering to one, which has always been Dr. Krugman’s desire, and free markets will thrive in medical insurance.

Yet just two months ago he said a market cannot work because a buyer cannot compare what two sellers are offering. If two sellers are offering the same thing, then it’s easy to compare them.

“The second thing about health care is that it’s complicated, and you can’t rely on experience or comparison shopping.” (Why Markets Can’t Cure Healthcare, 7/25/09)

If we all have a comprehensive package, then what we are buying is no longer complicated but it is simple. Dr. Krugman said the free market doesn’t work in health insurance because a policy is complicated. So we make the policy simple—just as he always said we should. And also, by the way, we should condemn conservatives for arguing in favor of making the insurance-purchasing decision complicated. By doing so, they are, unwittingly, closing off the system to a free market.

“Health care just doesn’t work as a standard market story,” said Dr. Krugman (Why Markets Can’t Cure Healthcare, 7/25/09, NYT).

My opinion is that it does work. It does work as a standard market story if every person holds a comprehensive package. Don’t take my word for it. Ask the Japanese. Ask the Germans. Ask the Swiss. Ask the Dutch.


To conservative readers: Which one do you want? Do you want simplicity and genuine robust free market service providers attacking each other for market share? Or do you want to preserve the individual choice of a myriad boutique of coverage options in purchasing insurance?

If you want to pick and choose what your medical insurance will cover, you condemn a majority of buyers to confusion. And you doom the insurance companies to serving a fragmented market. And you doom the country to the insanity we have now. If all policies cover the same basket of goods, then insurance companies can compete on price and quality of their service. We can use high deductibles on these comprehensive plans to make them affordable.


Under reform, a comprehensive benefits package should be established. If a comprehensive benefits package is established, that will make it simple to compare different insurance companies who offer the same policy. That means that health care, contrary to Dr. Krugman’s assertion, can easily work as a standard market story.

He has to decide for himself: Does he want a confusing world where insurance companies can offer a million different policies? Or does he want a world where every person has a great medical insurance policy? If it’s the latter, then the market can work, because all will be able to compare the same thing. Dr. Krugman has never requested anything less than a comprehensive package in all of his writings.


“This problem (with using private insurance companies) is made worse by the fact that actually paying for your health care is a loss from an insurers’ point of view,” said Dr. Krugman. “They actually refer to it as ‘medical costs.’ This means both that insurers try to deny as many claims as possible, and that they try to avoid covering people who are actually likely to need care. Both of these strategies use a lot of resources, which is why private insurance has much higher administrative costs than single-payer systems. … this means that private insurance basically spends a lot of money on socially destructive activities.” (Why Markets Can’t Cure Healthcare, 7/25/09, NYT)

While it is true insurance companies have sought to deny claims, under a universal package given to all, the practice of denying claims will send up a huge red flag that litigation attorneys and government regulators will use to make life hell for the offender. And if we have detailed data on performance including customer satisfaction, then these kinds of fouls will lead to real losses in the marketplace. They will become an aberration, not a common practice.


Dr. Krugman refers to the practice of denying coverage for pre-existing conditions and rescinding coverage as the expensive practices which make private insurance unworkable. Yet he knows that under everybody’s version of reform, these practices will be outlawed. How can he be arguing against what is outlawed?

Dr. Krugman’s burns his straw man — the conservative argument in favor of free fair markets for private insurance companies — with past practices. It is false to say “private insurance has much higher administrative costs than single-payer systems” (Why Markets Can’t Cure Healthcare, 7/25/09, NYT). He is mixing time frames and arguments. Apparently his editors are dumb to it. Or they don’t care about deceptive practices? Is that new journalism?

The Congressional Budget Office has just released this score of Senate Finance Committee plan for medical reform.

The tax payer's position after medical reform.

He is arguing that medical insurance can’t work in a market system because of “socially destructive activities” like cancelling insurance or refusing to cover for pre-existing conditions. Since these practices are banned under anybody’s version of reform, he is arguing about the amount of hay horses should eat to keep his horse and buggy moving. We are going to a world where cars are used for transportation and cars run on gasoline. Yet he openly makes arguments about a horse-and-buggy world just two months ago. He has either utter contempt for his readers and a sociopathic ends-justifies-the-means attitude; or he lacks basic intelligence to understand and is somehow blind to his obvious errors.


These are not isolated incidents for Dr. Krugman. He argues repeatedly for the superiority of Medicare because of its low administration costs, but the expensive costs of administrating private insurance are going away with reform. If you can’t rescind coverage and you can’t deny coverage for pre-existing conditions, then you can’t spend all the money that you were previously on those “destructive social activities”.

“One purpose of the public option is to save money. Experience with Medicare suggests that a government-run plan would have lower costs than private insurers; in addition, it would introduce more competition and keep premiums down.” (Obama’s Trust Problem, 8/21/09, NYT)

Here again we have an argument made not three years ago or five years ago, but an argument made two months ago. And there’s a curious absence worth noting: While he is a consistent and devoted follower of Medicare’s low administration costs, an advantage which is going away after reform, he is literally blind, deaf, and dumb to Medicare’s insolvency. That’s not a small miss. In fact, it’s the biggest miss you could possibly make.


Since he is an economist by training, it would make sense for him to describe to us why, if Medicare is such a great success, then why is it a threat to the solvency of the United States? Why is it in the hole by $34 trillion, according to the General Accounting Office of the United States government.

Dr. Krugman never once, in approximately 40 stories and posts I read, never once does he refer to the insolvency of Medicare. It is widely seen as the most serious financial problem for the United States government. He mentions Medicare 42 times in the stories I read, but never once does he talk about its long term financial problems (See chart below which analyzes the fairness of Dr. Krugman’s arguments by searching for terms used in his stories on medical reform.).

This omission is Orwellian poetic license at its grandest. It is on par with saying Stalin was a bold agricultural planner, and forgetting to mention 6 million starved for his bold plans.

Krugman Out Damned Prejudice

There is another strange omission. Dr. Krugman never refers to fraud. 60 Minutes at CBS estimates the cost of fraud is $60 billion a year (Medicare Fraud: a $60 Billion Crime). Based upon a $440 billion budget for 2007, that equals about 13% of costs. I have seen other credible claims that 10% of Medicare expenses are fraudulent. I don’t know the likelihood of fraud in claims made to private insurance companies, but I’m guessing its lower. Who do you think would be easier to rip off?

Dr. Krugman loves Medicare for its efficiency, but he does not mention fraud or insolvency. These aren’t small omissions. He wants to make medicine affordable, but he never considers how litigation might be a source of unnecessary expense. He complains that private insurance companies are unreliable because they deny so many claims, but Medicare, his favorite program, denies more claims than any insurance company (see chart below on claim denial stats).

denial rates_resize 200

"This problem is made worse by the fact that actually paying for your health care is a loss from an insurers’ point of view — they actually refer to it as “medical costs.” This means both that insurers try to deny as many claims as possible, and that they try to avoid covering people who are actually likely to need care. Both of these strategies use a lot of resources, which is why private insurance has much higher administrative costs than singlepayer systems." Paul Krugman, 7/25/09, "Why Markets Can't Cure Healthcare"


“So when you hear people like (Representative Jim) DeMint — or conservative economists — preach the wonders of a market-based health care system, bear in mind that this is what it would look like: an America in which nobody who has ever had a major health problem, or had a minor health problem that for some reason bothers the insurance company, can get coverage. Believing that it would turn out otherwise is the triumph of ideology over experience.” (DeMint Offers a Teachable Moment, 7/27/09)

This statement is shockingly dishonest. Again I wonder how his editors allowed the statement to be made?

Every one of the proposals now in Congress will end the practice of denying coverage to those with health problems. Reform changes the rules and Dr. Krugman is arguing about the old world; not the new world that we are moving too. He wants to attach to private insurance its current problems so he can keep his favorite version of reform as the best version of reform.

He repeats these errors of logic over and over again. The misnomers in timing repeat and they repeat. Here he is in June, tarring the future of private insurance by fixing to it a practice which will be banned after reform.

“The truth is that the notion of beneficial competition in the insurance industry is all wrong in the first place: insurers mainly compete by engaging in ‘risk selection’ — that is, the most successful companies are those that do the best job of denying coverage to those who need it most.” (Competition, Redefined, 6/22/09, NYT)

“Risk selection” is outlawed under reform, but just last June he defines private insurance as unworkable and as using it in all cases when it is outlawed by reform. It is a falsehood, and he is using a falsehood to deceive.


His true opponent is a free market for medical insurance – in which five or 10 or 100 companies compete against each other for business. He keeps what will be outlawed in his description of the future so that he can continue to say that free markets fail.

The prejudice behind these obvious errors? Dr. Krugman hates free markets; or at least he does in heath care.

“… in health care, the free market just doesn’t work. And people who say that the market is the answer are flying in the face of both theory and overwhelming evidence.” (Why Markets Can’t Cure Healthcare, 7/25/09, NYT)

Allow me to present overwhelming evidence to challenge Dr. Krugman’s statement from July. If we define a free-market system of medical care as a system where private insurance companies cover individuals and the individuals go for care to privately owned hospitals and privately-employed doctors, then he is arguing that the medical system in Japan, Germany, Switzerland, and the Netherlands – he is arguing that all of them are failures. If you depended upon his column for both fact and opinion, then you would be completely unaware of these countries and their methods.

He doesn’t have the decency to make the bald statement that they are failures. He simply sweeps them under the carpet. He hopes that nobody notices four of the most successful countries in the world use free markets in medical insurance when he says “people who say that the market is the answer are flying in the face of both theory and overwhelming evidence”.

The overwhelming evidence from Germany and Japan and Switzerland and the Netherlands is that they do work. What a horrible thing for a journalist or an economist or a responsible adult to do. This is the most important reform debate of our life time, and he is shedding not light but darkness. He is not presenting a weak version of the argument he is challenging. He is pretending there is no argument.

Dr. Paul Krugman

Dr. Paul Krugman blogs as "The Conscience of a Liberal", but a review of his argument for medical reform shows that honesty and fairness are not priorities for his conscience.


If you haven’t had a chance to tally up Dr. Krugman’s deceptions, omissions, and errors, here is the list:

  1. Dr. Krugman tars private insurance with high administration costs when those high costs go away after reform.
  2. Dr. Krugman loves Medicare and wants a single-payer system, but he never mentions the huge losses Medicare takes due to fraud. If Medicare is better at policing fraud than private insurance, why does he never bring it up?
  3. Dr. Krugman extols on the virtues and simplicity of Medicare while at the same time he never once explains why the insolvency of Medicare doesn’t matter.
  4. Dr. Krugman wants affordable insurance, but he never once looks at malpractice litigation as a source of our current problems.
  5. Dr. Krugman argues that private medical insurance doesn’t work anywhere and never has, when it does work in very successful countries (Japan, Germany, Switzerland, and the Netherlands). His omission deceptively implies these countries don’t exist or that they don’t have private medical insurance.
  6. Dr. Krugman assigns private medical insurance to the scrap heap because buyers will never be able to comparison shop for a good deal. The truth is that a comprehensive medical coverage policy for all, the robust coverage he has long argued for, it will guarantee that buyers can easily compare the offerings of as many sellers as there are.
  7. Dr. Krugman advocates the public option and a single-payer system, when that choice violates the most basic and settled findings of his profession of economics, including the suggestions he makes in his own text book (see below “Monopolies: And The Text Books Says?).
  8. Dr. Krugman claims private insurance companies spend a great deal of effort denying claims and faults them for it, but Medicare denies more claims than any major private insurance company (see chart above “In Denial”).


I have just checked in with The Guinness Book of World Records and they are reviewing Dr. Krugman’s nomination in the category Unreliable Narrators — Fiction.


And here I pause, for a moment, to tell the reader my prejudice: Based on everything I have read, the Swiss have an outstanding medical system which is perfectly suited to the United States (See the work of Regina Herzlinger. She is the leading advocate in the United States for the Swiss system.). Each person has their own policy. Every person is covered. You cannot be canceled. You cannot be denied coverage. Everybody pays the same price. Approximately 90 different private insurance companies compete to cover individuals. The poor have their purchase subsidized, but they have the same insurance everybody else has. The Swiss spend 10% or 11% of GDP to cover everybody. We would save $850 billion dollars a year if we met this benchmark, and everybody would be covered. It’s mindboggling, staggering, immense, unbelievable. Reform is needed, much more badly than you can imagine, and the Swiss know how to organize medicine. Buy one of their watches if you don’t believe me. They work.


Look at this statement by Dr. Krugman.

A private medical insurance company “spends a lot of money on socially destructive activities.“ (Why Markets Can’t Cure Healthcare, 7/25/09, NYT) That was true in the old days. It’s not true under anybody’s version of reform. So why is he arguing about the failures of the old system when what we are all trying to do is configure the new system?

Have you seen a pattern of behavior for Dr. Krugman? Do you think I am constructing a straw man, or is he a builder of fields full of straw men?

“If you do the math,” says Dr. Krugman, “it becomes clear that covering everyone under Medicare would actually be significantly cheaper than our current system.” (Death by Insurance, 5/1/06, NYT)

This is a double lie. Both lies are monsters.

First, Dr. Krugman never does the numbers. Not in any of the stories that I read. How can I judge his numbers if he never shows them to anybody?

Second, Medicare is bankrupt. How can expanding a bankrupt system to everybody else make it less bankrupt? It defies logic, and logic matters. It cannot make sense.

“The truth is that we can afford to cover the uninsured. What we can’t afford is to keep going without a universal health care system.” (A Healthy New Year, 1/1/07, NYT)

We would like to believe this hopeful statement Dr. Krugman, but where are your numbers?


My counter hypothesis says the fact that coverage is not universal is not the cause of our cost problems. Extending coverage to all now will simply increase the number of people who are charged an outrageous amount for their coverage. It will make things worse – by 47 million people times approximately $9,000. If we get universal coverage out of reform, it will cost approximately $400 billion more per year than we are spending now ($9000/person times 47 million uncovered persons).

Here the angry mob at town meetings has clear intelligence. If the mob says adding 47 million people to a system which is broke cannot make the system less broke, then who is engaging in “lies and fear mongering” (Republican Death Trip, 8/14/09, NYT) by saying that “what we can’t afford is to keep going without a universal health care system (A Healthy New Year, 1/1/07, NYT)?

Dr. Krugman is in his own category when it comes to lies and fear mongering.


The cost of medical insurance is unfairly high for anybody and everybody in the United States. Whoever is providing insurance — whether it is a private company or a government agency – they are all charging too much or being charged too much and doing a bad job — if a good job means the service is affordable.

The debate has failed to come to terms with the “why” of this failure. When persons like Dr. Krugman are guiding the debate–and he is without question a leading voice—is it any wonder that nobody knows what they are talking about?

The world according to Dr. Krugman says Medicare is solvent when it is insolvent. The world according to Dr. Krugman says Medicare is a model of low-administration-cost efficiency when it throws away 10% of its money every year on fraud.

In the world according to Dr. Krugman, private free markets in medical insurance cannot work, but they do work in Japan and Switzerland and Germany and the Netherlands. There is much that we can like from all of their systems.

What follows logically is a second hypothesis: The reforms proposed by both sides are so deficient in their analysis of the failure that we are doomed to failure whether something passes or not. Such is the bitter harvest of dishonest argument.


My prejudice, in general, is to say that economics is dumb and doesn’t know what to do about anything. In the case of medical reform, however, it is smart, and it knows exactly where we should go.

Strangely, we have a problem which the field of economics can teach us to fix. Economics is smart and on-the-ball when it comes to market failure. In medical care, we have a market failure which needs to be fixed. Anti-trust enforcement is required. New regulation is needed.

For those of you who are not economists, market failure is the second chapter in every economics book. The first chapter is supply and demand. Supply and demand are the creators of price. Delivering low prices is the point of an efficient competitive economy. The title of the second chapter is “Monopolies”. The chapter says only one thing: “Break up monopolies and make markets competitive or you will be stuck with high prices.” What is the biggest problem we have right now with the medical insurance market?


It has been a while since I have been to class. I want to look at a text book, and see what it has to say about monopolies. I have a copy of Economics (By Paul Krugman & Robin Wells).

I leave the reader with this introduction to the central issue of why and how our medical industry is hanging us out to dry and leading us to bankruptcy and destroying our way of life:

“And those who prefer not to buy insurance from the private sector would be able to choose a public plan instead,” said Dr. Krugman. “This would, among other things, bring some real competition to the health insurance market, which is currently a collection of local monopolies and cartels.” (Help Is On the Way, 7/6/09, NYT-my emphasis in the quote)

Good work Dr. Krugman. The insurance market is a “collection of local monopolies and cartels”. You really are an economist. Fantastic.


One thing I can assure readers: It never says in anybody’s economics book that the cure of a broken uncompetitive failed market controlled by monopolists is to create a new and more dangerous and more powerful monopolistic competitor. If you have a market controlled by monopolists, you either break up the monopolies or you change the regulations to ensure competition follows.

economics krugman wellsThe public option, which will create a new and dangerous and more powerful monopolistic competitor, defies the settled findings of economics. Prescribing it is like a doctor arguing that a patient doesn’t need to breathe.

Dr. Krugman’s teachings on monopoly, when contrasted with his program for medical-insurance reform, will prove that he is willing to say anything he wants to get what he is after. He will deny his own text book. He will deny the settled findings of his profession. He will look you in the face and tell you flat out: “Oxygen is not necessary for breathing.”

Is that the kind of doctor you trust to lead the debate on the most serious financial issue in the world’s leading economy? Do you know what happens if we screw this up?


Give me Chapter and Verse

We use monopolies every day. Frequently they do a very good job. The good monopolies which I describe below are arguments in favor, in some sense, of socialized economies. They are also recognized as a necessity by any conservative advocate of free markets.

The most obvious natural monopoly is the roads which cars use. If you want to understand why it is a natural monopoly, simply think of what it would be like to have more than one service provider. Could two companies provide two roads which auto drivers choose from?

There are at least two very good reasons that there will never be more than one set of roads. First, there is no room for a second road. It’s impossible to create a condition where two competitors compete to provide a better service at a cheaper price. Our roads already take up more valuable real estate than we want to give them.

market share by state from business week

The second reason refers to a definition from economics of a natural monopoly: The service is provided more cheaply by one large firm. “As a result, a given quantity of output is produced more cheaply by one large firm than by two or more smaller firms.” (Economics, Paul Krugman & Robin Wells, 2006, P. 337 — all quotes which follow reference the page number in the text book, unless they are from the New York Times).

Since the point of markets is to provide goods and services for the cheapest price and highest quality, if the price is better with one supplier, then the government should support the monopoly. It’s a natural monopoly. Sometimes the government itself will run this kind of monopoly.

The prejudice in economics is to create conditions of perfect competition, but that prejudice does not apply, and it is justifiably ignored, when the market is a natural monopoly.

Trains and train tracks are close cousins of roads and cars. In urban settings, it’s impossible to have two sets of competing tracks. That is why government bodies typically run urban train systems. Think also of the military. We could theoretically employ private armies, but we prefer the president have his own nuclear weapons, his own fleet of battle ships and tanks, and that he command his own fighting troops.

Think of the fire department and the police department in your town or city. Few of us question that the government should be the employer and controller of these services. It’s cheaper just to have one police department and fire department. It would be more expensive to have two competitors. All of these examples are natural monopolies.

“A monopoly created and sustained by economies of scale is called a natural monopoly.” P 337 A natural monopoly means that one firm provides the best price.

Dr. Krugman and Dr. Wells say that they prefer private groups to run natural monopolies if that is available, even though natural monopolies are the form of monopoly most reasonably owned and managed by a government body.

“Experience suggests, however, that public ownership as a solution to the problem of natural monopoly often works badly in practice. One reason is that publicly owned firms are often less eager than private companies to keep costs down or offer high-quality products. Another is that publicly owned companies all too often end up serving political interests – providing contracts or jobs to people with the right connections.” P 350

concentrated markets crop jpeg

“In the United States, the more common answer has been to leave the industry (which is a natural monopoly) in private hands but subject it to regulation. In particular, most local utilities like electricity, telephone service, natural gas, and so on are covered by price regulation that limits the prices they can charge.” P 350.  “If the industry is not a natural monopoly, the best policy is to prevent monopoly from arising or break it up if it already exists.” P 349

Why do we worry about monopolies? They lead to reduced output and higher prices compared to a competitive market. P 336. The medical insurance market has a problem when it comes to price, which suggests monopoly could be the problem.

“Monopolists know that their actions affect prices and take that effect into account when deciding how much to produce.” P. 333. “(The number of firms in a market) depends on whether there are conditions that make it difficult for new firms to enter the market, such as government regulations that discourage entry, economies of scale in production, technological superiority, or control of necessary resources or inputs.” P 334

“This kind of behavior is good for the producer but bad for consumers; it also causes inefficiency. An important topic will be the ways in which public policy tries to limit the damage.” P 335

In a market like medical insurance, there are relatively few producers of long-standing in each of the 50 states. They cannot openly collude to set high prices and to limit supply, but that doesn’t mean it cannot be done. “Since collusion is ultimately more profitable than non-cooperative behavior, firms have an incentive to collude if they can.” P 368. “When oligopolists expect to compete with each other over an extended period of time, each individual firm will often conclude that it is in its own best interest to be helpful to the other firms in the industry. So it will restrict its output in a way that raises the profits of the other firms, expecting them to return the favor.” P 376


Blue Killer Whale: The center of monopolistic power in medical insurance lies with Blue Cross Blue Shield.

What is bizarre about Dr. Krugman’s support of a public option and, in the long-run, a single-payer system, is that his stated preference in his textbook is to keep even natural monopolies in the hands of private providers. My assumption is that medical insurance in not a natural monopoly (it is not like roads or train tracks or police departments). If the assumption is correct, then the remedy is quite clear, according to the text book. “The best policy is to prevent monopoly from arising or break it up if it already exists.” P 349

The conservative arguments against the public option and against a single-payer system are all based upon trying to make the market more competitive. They are following the settled finding of economics when they say unnatural monopolies need new regulations or anti-trust enforcement. Dr. Krugman strangely makes the case for a type of mixed market (a public competitor mixed in with private competitors) in his newspaper stories which is nowhere to be found in his text book.

“Conservatives will fight fiercely against these moves,” Dr. Krugman said in his news column. “They say they believe in competition — but they’re against competition that might show the public sector doing a better job than the private sector. Progressives should support these moves (for a public option) for the same reason. Ending the subsidies to middlemen (insurance companies), in addition to saving a lot of money, would point the way to broader health care reform.” (First, Do Less Harm, 1/5/07)

He wants, according to his newspaper writing, a market with private companies competing against the federal government. It defies the sense of his argument about unnatural monopolies. He is wary of giving the government control of natural monopolies. If logic reigns, he would be doubly weary of giving the government control of an unnatural monopoly. He never argues in his text book for giving government control of unnatural monopolies, or even a place in the market as a competitor.

Which begs the question: Is medical insurance a natural monopoly? If we use our own best definition from Dr. Krugman, we consider: In a natural monopoly “a given quantity of output is produced more cheaply by one large firm than by two or more smaller firms.”


There will be duplication of functions if there are two or five or ten medical insurance companies competing for the business, but it isn’t duplication like trying to build two sets of roads side-by-side or two sets of train tracks or two militaries.

If we look at the classic features which make a market uncompetitive, they will help tell us if the monopoly is natural, or if it is a creation of competitors and government policy.

“Something must keep others from going into the same business; that ‘something’ is known as a barrier to entry. There are four principal barriers to entry; control of a scarce resource or input, economies of scale, technological superiority, and government-created barriers.” P 337

There actually is a scare resource in medical insurance, although perhaps not by most economists’ definitions. If you are going to do business in medical insurance, you need relationships with huge networks of service providers. Who are all of these people? How do I get their name and phone number? How do I know where to set prices? What bills are legitimate? Can you trust this hospital? Is this doctor always conducting too many tests? Will the hospitals and the doctors see your patients? The people who have relationships in place have a huge knowledge and contact advantage which a new competitor, at least from my standpoint, must find daunting when they start from scratch.

The current competitors also have a huge advantage in economies of scale. They have so many established patients that their revenue will dwarf any new entrant. It would take a major investment in marketing to win away new business and have an appropriate minimum revenue.

The most important barrier, however, is likely in the area of government-created barriers. Here I will give you my speculation as to what they are. The truth is that in the hundreds of stories I have read, not one has provided any detailed information about what a state requires of a medical insurance company. I know states regulate medical insurance, and that each state has their own set of rules, but I don’t know much more.

The most important known error in current regulation, according to conservatives, is that individuals cannot purchase insurance across state lines. This is a major problem in the individual market. Dozens of conservative commentators say that this restriction on purchasing is the key to unlocking competitiveness in medical insurance.

It is likely also a factor in the group insurance market, at least for single-state companies restricted to purchasing within the state of their operation. Insurance companies wield a mafia-like fix in the market for individuals, small corporations, and single-state companies (Multi-state companies may be a different animal.).

insurance market concentration

See above the first chart “Insurance Market Concentration: Ranked List (2007)”. It shows market share of the leading competitor at a low of 24% in California and a high of 78% in Hawaii. Anything past about 20% for any competitor is starting to get unfair. The second chart, “Commercial Insurance Enrollment” (see below), although it is older data (2003), is the best and most complete picture on market share because it includes nearly complete data on all different types of individual and group policies.

insurance market share commercial (not public) insurance enrollment market share 1st one & 1st three

These are the two basic fact sheets which we all must start from. They are a Rosetta Stone. It should be in every news story about medical reform.

The most corrupt states with the most broken medical insurance markets are listed at the top of the page of “Insurance Market Concentration”, but the market shares of all states indicate that literally every state has a competition problem. These lists are the basis of the entire hypothesis in this paper. I believe it is the equivalent of watching Macbeth walking out of the king’s chamber with bloody knives in his hand.

Other barriers which affect entry are extensive licensing requirements for insurers. And then there is the abundance of 50 state regimes. There are 50 different sets of rules, one for each state, defining what medical insurance means and how the industry operates.


Dr. Krugman criticizes the Republicans because he says they only pretend to pursue competition. He believes they are supporting local monopolies in medical insurance; that their argument for “more competition” is a ruse. “The essential point here is that Republicans don’t want any competition for private insurers,” says Dr. Krugman. “It’s not about free-market principles — in many cases, insurers are in effect monopolists. It’s about protecting the vested interests.” (Republicans Who Say Ni. NYT, 6/23/09)

Dr. Krugman may have hit the nail on the head, especially his words about monopolies. I repeat my central hypothesis of this paper: Fifty state-wide monopolies in medical insurance have ruined competition. The monopolistic medical insurers maintain illegal price controls by colluding with monopolistic hospitals in a “bilateral monopoly”. Together the insurers and the hospitals create high prices and limited supply. It is a textbook case of monopoly. Imposing disruptive new regulation can break both of these monopolies. Combined with litigation reform, high deductibles, and outsourcing (think “Bypass vacations to India”, for example), we can reduce medical costs by 30% to 50%. This plan will radically transform our competitiveness in all fields and start a new golden age in wage growth for all classes.

If monopolies have destroyed competition in American medicine then the right way to cure this failure is breaking up the monopolistic players or changing the rules of their markets. It is not creating a new super monopoly. The public option is by definition a new monopolistic competitor. You cannot put the full faith and power of the federal government behind a person place or thing without creating an entity which will destroy the competition. Dr. Krugman, nevertheless, argues for the public option.

“And those who prefer not to buy insurance from the private sector would be able to choose a public plan instead. This would, among other things, bring some real competition to the health insurance market, which is currently a collection of local monopolies and cartels.” (Help Is On the Way, NYT, 7/6/09)

This suggestion violates all that we know about unnatural (unjustifiable) monopolies. There is not one instance in Dr. Krugman’s text book in which a government competitor is created to make private competitors do a better job. My guess is there isn’t an economics text book in the world that would make such a suggestion, unless you pull out some equivalent of the Communist Manifesto. It is like suggesting that crystals and chants are valuable healing methods. Now you know why I call him the Witch Doctor.

Dr. Krugman wants either a single-payer system or a socialized system (he speaks highly of both), but economics tells us that the proper role for government is to change regulation so that the barriers to entry are no longer effective. That’s the gist of it. An honest economist would say: Let’s change the regulations and get rid of these barriers to entry. You create competition by changing the rules of engagement. The debate over the public option has co-opted the valid arguments we should be reviewing on how best to encourage competition.

Dr. Krugman would like to be the savior of medicine in the United States, but by advocating a liberal state-centered plan to govern medical care for 300 million people spending $2.5 trillion, he is arguing against his own writings. You don’t have to believe me. Listen to him.

“Experience suggests, however, that public ownership as a solution to the problem of natural monopoly often works badly in practice. One reason is that publicly owned firms are often less eager than private companies to keep costs down or offer high-quality products. Another is that publicly owned companies all too often end up servicing political interests – providing contracts or jobs to people with the right connections.” P 350.

You can’t put the power of the federal government behind an insurance plan without creating a competitor which destroys all others. And then when it has destroyed all others, it does whatever it wants to do. There’s no competition to force it to lower prices or increase quality or do a good job. You would be creating a patronage mill of a size never seen before in the history of the world. The unions for doctors and nurses would put the auto unions to shame.


There’s another explanation for all of this error. The strange truth is that Dr. Krugman admitted  recently in his column, at least four years into to his work on healthcare reform, that he has just now understood for the first time the problem in the medical-insurance market.

“In fact, I may have a new hypothesis about the political economy of the health care fight,” Dr. Krugman writes. “… So here’s a suggestion: while the opponents of a private public plan (public option) say that they’re trying to defend market competition, what they’re actually doing is defending lucrative local monopolies.” (Competition Redefined, 6/22/09, NYT-I have added the emphasis and underline.)

Dr. Krugman has been treating a patient for at least four years (the first story I have by Dr. Krugman on medicine is dated November 7, 2005) without understanding the illness. He has discovered this summer that the patient has brain cancer. It’s life-changing news. “Lucrative local monopolies” for a market are like brain cancer for an individual.

For an honest economist, your entire approach changes after this discovery. Dr. Krugman has written no mea culpa I am aware of. Yet his words on the ailment are as plain as day. He has a “new hypothesis” and the problem is “lucrative local monopolies”.

To be fair to Dr. Krugman, the medical-reform journalism has been horrendous. The story on the market failure in medical insurance and hospitals has not been reported. My knowledge of it is limited, but the debate on reform appears to be far off the mark. It’s absolutely shocking how uninformed the debate has been if the monopoly hypothesis is correct. And the fixes, as suggested by basic settled rules of economics, are not complicated. A small number of simple steps would be revolutionary.



Why is the medical insurance industry failing? Why is our health care system broken? Who is truly responsible? Do we cover 85% of our population at a cost of 16% of our national income? Do other trade partners cover 100% of the population at @ 10% of their national income (Switzerland, Germany, Japan, France)? Isn’t that an amazing comparison? Our system costs 60% more than any of the others, and we block out of the system 15% of the population (almost 50 million people).

If we covered everybody, based upon current per capital expense for those who are covered, then 19% of national income would be used for medical care. We would spend 19%. Our trading partners spend 10%. Round the numbers. We are paying twice as much for medical care compared to our major trading partners.

Once upon a time, in a world long ago and far away, conservatives believed that a free market system produced both superior quality and lower prices. And now they argue that people are using health care too much because their out-of-pocket expenses are limited (the “wedge” argument)? Is that why medicine costs twice as much in the United States compared to anybody else? Where is the logic in that argument if we are the only country with a wedge problem?

Let’s look at another number. The United States now spends almost $9,000 per person on health care (for those who actually receive coverage). Is there anybody who can honestly say that $9,000 is a reasonable cost for one person’s insurance?

Here’s my opinion: It’s outrageous. It’s skewed beyond belief. This is completely unfair. The medical insurance companies and the hospitals and the doctors and state-insurance regulators and politicians and Medicare and Medicaid – they are all conspiring to destroy our country’s finances.


The wedge argument suffers from one fatal mistake: It’s doesn’t make sense and never will as the primary source of our ills. Making people shell out for treatment or drugs can make a huge difference as part of reform, but if it is listed as the first failure of the system, it misleads, and will prevent a systemic correction.

I know we have an obesity epidemic. I know we have a lot of old people. I know we have unique cancer treatments which are expensive. I know our medication bill is much higher because we have the newest discoveries. I know we have a lot of KAT Scan machines to pay for. I know co-pays and deductibles are low in many cases. None of that’s enough to explain our massive expense.

The simple and correct answer is the one we have already suggested: The medical-insurance market in the United States is controlled by a quiet and perfectly organized mafia. Each player takes one state for themselves. It’s a monopoly times 50 states and each of the 50 states is dedicated to keeping their corrupt machine running perfectly. Have you even heard of this hypothesis before reading this paper? If the hypothesis is right, but it doesn’t guide debate, how can reform be effective?


Let’s speculate on a perfect crime. In each of the 50 states we have a huge industry. In many cases the medical industry is bigger than any other industry in the state. It has to be given that it is 16% of GDP.

Medical insurance and hospitals are a huge and important source of jobs. The medical-industry executives probably have more money than any other industry’s executives to endorse state, local and national politicians. And they have more important reasons to buy them. The fix is cemented in to place by state regulators. They keep their jobs if medical care is a state-by-state industry.

How many state regulators would lose their job if tomorrow we had one set of rules for medical insurance for the entire country? Can you imagine the clout required to take out 50 state medical insurance departments who all live by keeping the current system alive? And they are colluding with 5 or 10 mega-power medical insurance companies. Assume there are 1000 medical insurance companies distributed throughout the 50 states. Should we impose one national market or in some way create competition in medical insurance, probably 950 of those companies would go out of business.

Can you imagine the clout required to change the law so that 50 state medical insurance departments and 950 medical insurance companies will be erased out of existence? And those two powerhouse groups are colluding with mega-dollar hospital and doctor groups. And the regulators and insurers and the hospitals and the doctors — they are all colluding with politicians bought and sold by this rampant incestuous pig. And then there’s Medicare and Medicaid: Who can stop their tidal wave?

Now you know why we can’t fix medicine in the United States. Ten to one odds says national bankruptcy must precede a restructuring of medicine. The power of the interests controlling the industry is far too great for real reform.


The state regulators want to keep their pay check and their free lunch once a month with their counterpart at Blue Cross Blue Shield (All signs point to Blue Cross Blue Shield as the nexus of the devil’s triangle of medical insurance.). Don’t forget too that state regulators have children who need jobs. The medical industrial complex has a place for each and every one.

Is junior only up to changing bed pans? We have a home for him at the hospital. Can junior spell? Then he can be an executive at the insurance company or the lobbying group. Or he can be a second-generation state regulator.

Have you noticed that the Obama administration plan has a special limitation to its insurance “exchange” where uncovered persons will go for coverage? They are statewide exchanges. Each state has their own exchange. It’s a confirmation that insurance companies will cooperate with any plan that doesn’t disrupt the 50 corrupt states of colluding monopolists. It’s a perfect crime (There is a plan in the house with a national exchange. It should be everybody’s highest priority if it’s not a fraud.).


Much dumber than the wedge argument is the horrendous public option. Here we simply refer to the basics of monopoly. When you have a failed market controlled by monopolistic competitors, you break up the monopoly. You don’t create a new superpower monopoly.

Is the public option a monopolistic competitor? You don’t have to be an economist to answer this question. You need a little tiny bit of common sense.

A monopolistic competitor has a special advantage over others. Now ask the simple question: Does a competitor who is the federal government of the United States of America have a special advantage?

If you are not sure how to answer, the last book you fully understood was “Dick and Jane”. I advise you to stop reading and never speak again about politics or economics. Go on to something else like marbles.


What the insurance companies need is competition. It seems reasonable to say the public option is the perfect way to guarantee this, but economics tells us what will happen once we set this beast in motion. The public option will do very well in the competition. It will, in fact, win the competition.

And after everybody else is gone, in five or ten years, the public-option employees will stop picking up the phone. They will turn out the lights early and there will be no other place to go. The public-option insurance company will close the hospital early and keep reduced hours. You will go to the emergency room and they will tell you to come back later when the emergency room is open.

Competition in a free-market society is widely used to produce two things. 1. Better quality 2. Lower prices. It produces both simultaneously. Our health care system can work if prices fall. The more they fall, the better it will be for everybody. It will be much easier to cover the poor.

A public option will, in the long run, kill insurance companies, but insurance companies are the best resource we have for correcting the pricing problem. They deserve criticism for their current role, especially if it is described accurately here. Yet they are playing the game according to the rules which we have given them. Private insurance companies will be indispensable for correcting the failure we are now stuck with. The real failure of our system has been created and upheld by the politicians.

The key to economic policy in medical insurance, from the conservative perspective, is to have 5 or 10 or 20 companies competing to do the best job with fair regulations which destroy the state barriers to competition.


Not only has the orthodox conservative movement misread a standard issue market failure, they are confined in a neck-demobilizing halo which says that what we need to cure our ills is 50 states of marvelous invention. I assume you have heard of the states-rights theory. In this case, it is a straight jacket which makes the Appalachian world of the medical industry right at home and comfortable in the big wide bed they sleep in.

And here too is another strange coincidence which sheds further light on the medical monopolies. It appears that anti-trust law does not apply to state-wide markets. Or if it does apply, the regulators are not only asleep at the switch, they are dead at the switch. Since there is not one good news story on this entire admixture of monopoly and collusion and state-wide insurance markets, I can’t tell you how it really works. I don’t know if anti-trust (anti-monopoly) enforcement is supposed to be used at the state level?

I can refer to the two basic fact sheets we all must start from (see above). This is a Rosetta Stone. It should be in every news story about medical reform.

We know there is a conspiracy of monopolists. From the market-share list we know the medical system is terribly broken. We know that the theory of monopolies would predict such a failure. I don’t know how anti-trust enforcement is handled if the market is defined not by the country or the world but by the state. If there are any reporters out there still doing original research, this is an interesting story that can earn you a Pulitzer Prize. Simply describe the medical monopoly in your state and in the nut graph say: This is what has broken the medical insurance market in every state.


Let’s review the liberal position on reform. The first mistake is their opinion that Medicare is a great success. It is a temporary success, but a massive failure. It is a bankrupting long-run failure.

Failing to see that it is a long-run failure will guarantee the failure of our country’s finances. It is a failure because we cannot afford it and it is bankrupting us and something radical must be done to change its cost structure. Pretending it is a success is a mammoth lie and it is a very popular lie among liberals. They simply don’t care about whether or not it is solvent.

The second and profound mistake says that the free market doesn’t work. How does one properly categorize the magnitude of this error?

Doubting the validity and enormous success of competitive markets, especially in lowering the costs of goods and services in the last several hundred years, is far and beyond, in my opinion, the gross ignorance which either denies evolution or dismisses science.

monkey to man

Creationists represent outstanding scientific thinking when compared to free-market deniers.

The free market has worked, by constantly pushing costs down and increasing quality in agriculture, chemicals, construction, computers, electronics, entertainment, food manufacturing, hotels, housing, mining, publishing, telecommunications, and transportation. Does anybody in the liberal camp want to tell me which of these major industries would have been improved had the United States government been the single-payer or sole provider? What justification do you have for treating the medical-insurance field differently from cell-phone service or grocery stores or retails shops or French restaurants or agriculture or anything else? Is there one person in the world who will say we should close all French restaurants except for the United States French Restaurant Company?


Denying evolution has something sensible about it because there is a monkey and a man, but we don’t see the one turning in to the other. The change in hair and grooming habits happened a long time ago. In markets, every day and every hour of our day, we are served by “greedy” profit-seeking corporations in a free market who sell us clothes, food, computers, entertainment, travel, and anything you can think of buying. Walk around your house and look at anything in it.

Is there anything you see in your house which could have been done better if the United States government was the person who made it and sold it and backed it with customer service?  Do you wish you had a car made by the United States Car Company? Do you wish your windows were made by the United States Window Company? Would you like to switch your cell phone service provider to the United States government? Do you think they would do a better job than Verizon or Sprint or ATT or T-Mobile? Has anybody besides me hated a cell-phone company? Can you imagine what it would be like to have one cell phone company? Why is medicine different? What’s your justification for killing private competition in medicine? You say you want the Pubic Option to create competition, but what if the Public Option is based upon a complete misunderstanding of how to best promote competition?


Denying the success of free markets is on equal footing with denying the validity of the scientific method. Only vast prejudice explains it. The scientific method is the greatest technology owned by man, except it is nothing and far inferior to the technology called free markets. Free markets have had wider influence and far superior results in improving the material circumstances of life.

Don’t forget that poverty is the greatest illness known to man, and curing it is our greatest medical plan (See chart on GDP growth over the last 20 centuries.). If free markets create economic growth, then free markets are the greatest poverty fighters known to man.

36 gdp world gdp per capita year 0 to 2000

What do you say to a person who says the scientific method is a conspiracy and has produced nothing and can be ignored as irrelevant? What do you say to a person who says evolution never happened and it should be banned from the schools?

You either send them to school or to a psychologist. What do you say to a citizen of the United States who says markets don’t work and their house and office and town and world are filled with what the market has made better faster and cheaper?

Unfortunately, this equivalent of the denial of evolution; this equal of a denunciation of the scientific method; it is alive and well in the condemnation of free markets. The only reasonable way to explain this irrational hatred is to assume that the thinker’s psyche is deformed.

The psychological error which would produce this nonsense is not difficult to guess. A typically deformed thinker says the following: “I want everybody to have the same thing and nothing is more important than everybody being treated fairly.”

Is that your interior monologue?

This thinker would promote a single-payer, even if that option would bankrupt the country. If the voice inside your head says the priority of fairness is more important than the priority of looking at the world, and designing economic policy based upon human nature, as opposed to using the understandable human aspiration for fairness, consider the possibility that your ambition for fairness may destroy your country.


There is so much blame to go around in the health care debate that it is very hard to keep track of things, but I will try to summarize.

Above any group the economists deserve condemnation for failing to inform the public that the public option is a de facto creation of a monopolistic competitor and therefore a destroyer of the private medical insurance market. They should have explained that a monopoly is the last thing you want to create in a major industry. Or they should have explained why it is appropriate to create a monopoly. It’s one of the other.

If you want to lower prices, you break up monopolies or you change the rules of competition. These silent economists, who should have taken ads in major newspapers and signed their name, they allow frauds like Dr. Krugman to peddle their wares without consumer protection.

As a class they have been widely condemned for failing to see the financial crisis. Yet seeing the financial crisis required real intelligence. Telling the world what a competitive market is, how it is retarded by monopoly, and that the public option is the creation of a monopolistic competitor—these are basic facts derived from the settled findings of economics.

If you find an economist who will endorse the creation of a monopoly in a market which is not a natural monopoly, then you will have an economist who will denounce the supply-demand curve. If you have an economist who will deny the validity of the supply-demand curve, then you have the equivalent of a medical doctor who says that human beings don’t breathe and aren’t required to do so. Call it the Breathless School of Economics.


Next in line for incompetence and dereliction of duty is the group of active journalists—all of them. Their facts guide the debate.

State monopolies in medical insurance markets are a straightforward corruption story – medical insurance business executives buy state and federal lobbyists buy state local and federal politicians buy trips meals and employment for the next generation and then “Return to Go and collect $200”.

This perfectly corrupt circular enterprise is hidden in plain sight. It’s on nobody’s radar. It’s in nobody’s newspaper. It’s a conspiracy of stooges.

I stumbled on Rosetta Stone charts by accident, and it wasn’t in a newspaper or magazine (Here is a link to the chart.). I can’t describe the collusive behavior of service providers because I have not seen one news story on it. I don’t have one good news story on the insurance-provider monopoly either (Here is a second confirming chart supporting the hypothesis). The truth of the kind of monopoly we are suffering from is a complicated failure born by collusion among insurers, hospitals, regulators and politicians. It’s a true Devil’s Triangle run by Dr. Freddy Krueger.


Finally we have the conservatives. There is a huge long procession of conservative economists and commentators arguing tidbits about co-pays and deductibles and how this has destroyed American medicine. What a fantasy.

They distinguish themselves further by pretending its fine and dandy for poor people or others less fortunate to live in the greatest country in the world and go without medicine. The honest response is that medicine matters and all of us should have it and it would provide a common bond of citizenship if we all shared a good system.

swiss matterhorn

If medicine was some unaffordable fantasy I would understand opposing it, but it isn’t a fantasy in the life of trading partners. Many have outstanding medical programs which operate in perfect synchronicity with free market principles (Switzerland has the best system to match the American character and the dynamic creativity of free markets. Every Swiss resident has their own policy – all backed by one of about 90 private insurance companies. Click here to see the work of Regina Herzlinger – the leading advocate in the United States of the Swiss system.).

Here too, like Dr. Krugman, the conservatives have maintained strict discipline in pretending that the rest of the world does not exist. Well, for this debate, why don’t we invent the rest of the world. For having failed to do so, for having the ambition and brains of mice, the conservatives, especially the “wedge/moral hazard” gang, they jointly merit the Hogs-Get-Slaughtered Victory Trophy.

For the record: What we need in the medical insurance market is intense competition and an explosion of creative destruction. Competition is ten to fifty times more important than deductibles and co-pays. With competition we can pay the bill for medical insurance. We can easily pay the bill. Take a look at the state medical-insurance markets. Ask yourself: What will make them work? Take a look at Switzerland. Ask yourself: What makes it work?


While a stadium full of conservatives have made mention of the necessity of allowing buyers to cross state lines to buy medical insurance, they have mentioned this in the sort of way that one says his girlfriend is more beautiful than any other. He shows you a picture of her from 1,000 yards away as proof. It’s possible you are telling the truth, but you are so watered down you might as well be a fish out of water making a last few gasps.

For the record, and for all to see, there is a quick easy step to revolutionize medical insurance in the United States:

  • Allow an individual or group to purchase medical insurance in any state so that we immediately throw the insurance industry into radical panic, total chaos, and stark destructive competition.

It’s a one-sentence fix. It’s not a thousand pages. (Click here to see the work of Michael Tanner — the smartest advocate for creating competitive markets in American medical insurance.)

It’s a one-sentence fix. It’s a one-sentence fix. It’s a one-sentence fix.


While the evidence is undeniable that Dr. Krugman lies, omits, misunderstands and misleads, he points in the right direction when he warns that medical insurance is too complicated to allow for a free-market solution – unless our rules make it simple.

How do we solve this? How can a street sweeper with a fifth-grade reading capacity make a good choice about medical care? You give the street sweeper what the liberals want. You give them a comprehensive policy. You protect the weak. You give that comprehensive policy to every person within our borders.

You do that because it’s the right thing to do on two important levels. You have made that less-educated person smart and secure in their decision about what to purchase for medical insurance. That’s what God requires you to do. Do something good for your less-intelligent neighbor.

And, you give those ugly unfriendly selfish greedy capitalists, those terrible medical insurance companies, you give them 307 million targets. Those 307 million targets represent the most phenomenal business opportunity in the history of the world. The insurance companies can compete on price if they sell the same policy. Over time they will develop reputations – a very important way for competitors to differentiate themselves (see chart above from Martin Weiss “Not All Insurers Are the Same”). We can even sell very high-deductible plans so that the cost for coverage is low. It doesn’t kill competition to make every person carry a comprehensive policy. It increases competition if its handled right.

Who, besides a liberal, has something against creating the most phenomenal business opportunity in the world? Is a customizable policy more important than vigorous free-market competition?


Go back to basics.

We are spending $7,300 a person now on medical care.

Look at that number. Repeat it in your head. Ask yourself: Is $7,300 for every person in the United States reasonable? Is that a sensible number? Is it way too much?

This is the beginning to understand that there is some kind of terrible hex on the insurance market. The bill of $7,300 per person is far too high. And it doesn’t cover the cost for almost 50 million persons. The true price per person (who is covered) is $8,700 (based on 2007 spending). The number is tragic and ridiculous. What a joke.

To cover everybody today at today’s prices, we need to spend an additional $400 billion dollars a year ($8692/year per person * 47 million uncovered persons). That means the true cost to cover everybody is $4 trillion in additional spending over and above current costs for the next 10 years. The Congressional Budget Office is calling the tab for reform at under $1 trillion. God knows their calculation is much too complicated for me to understand. I do understand my numbers and I stand behind them. The method I use is called “price times quantity”.

And there’s an obvious problem with my numbers: How much will the cost of medical insurance increase if demand for it increases by 47 million buyers? How much are prices going to go up anyway in the next ten years given the 50 perfect monopolies we have in place?


The price per person now is so high that it is bank robbery. A terrible force controls the market. There is a monster. And the monster works. The monster is strong and unbreakable.

What’s a reasonable number? I bet we could do a good job for $3,000 per person. Can you imagine that? We would spend $921 billion to cover everybody, save $1.3 trillion, and cover 50 million people who aren’t covered. Does that sound like a good change we can believe in?

We have so much to gain by handling reform correctly. If there is one thing that Americans know how to do, they know how to make things better, faster, and cheaper – than anybody in the world. Why are we so incompetent at medicine?

If we use high deductibles, and if we reform medical litigation, and, if, especially, if we create competition in medical insurance pricing, by regulating away state-imposed barriers to entry and competition, if all of this can be done, then all we need is a few years for a complete turn around. You can rest assured that the Obama plan is pure flunky madness because all of these essentials are ignored.


Free markets are miracles. This is true for everybody – rich, poor and in between. We want and need and must have ten companies or 20 companies or 50 companies fighting it out in medical insurance, trying to figure out the best way to help their clients at the lowest price.

There’s a million different experiments and combinations they can try to get the job done right. A public option and a single-payer will kill this critical bias toward experimentation, improvement, cost cutting, and the mandate for better, faster, cheaper.

Liberals must consider the hypothesis that the ambition for improvement will be lost under a single-payer system or a fully socialized system. This logically implies that the public option should not be enacted. Why? Either a single-payer or a fully socialized system are the goal of a public option, although the talking point is that the public option is meant to bring competition.

If you read the literature, you will see liberal advocate after liberal advocate saying that the public option is a means toward the end of single-payer or a fully socialized system. The public option as a means toward a single-payer, purchased with the argument that the public option brings competition, proves that the liberal side is fully competent and comfortable in lying to your face about what they are doing and what their goals are. Dr. Krugman is not an anomaly.

There is a vast literature from liberals saying the public option is a means to the end of a single-payer medical insurance system. There is a vast literature of liberal writers saying the public option is not an attempt to establish a single-payer system. It's cannot be both.

There is a vast literature from liberals saying the public option is a means to the end of a single-payer medical insurance system. There is a vast literature and video library from liberals saying the public option is not an attempt to establish a single-payer system. Conservatives and Republicans have been pummeled for arguing dishonestly, but even the worst offenders are Virgin Mary figures when compared to Public Option proponents who mouth the phrase of competition while they dream of the future of a single-payer system with no competition.

Conservatives argue against a state-centered plan like a single-payer system based upon their theory of human nature and based upon the settled science of economics. The argument says if you have no reason to do better, if you have no incentive to do better, then you will not try very hard to do better. If making something better is difficult, and you, as manager, gain nothing from the improvement, then you will not do the difficult job.

Can anybody imagine how hard it will be to change something in a system where a government agency runs public medical insurance for 300 million people consuming $2.3 trillion of medicine a year? Take note that the Department of Defense spends a tiny little $615 billion. Our liberal genius advocates for single-payer public-option medical insurance are ambitious to create a hegemon clocking in at four times the Department of Defense. The precious dears are so idealistic.


Based upon the evidence of Medicare, any of the state-centered solutions will bankrupt our country. The public option and a single-payer system are state-centered solutions. Medicare and Medicaid, our current state-centered solutions, have already bankrupted our country. We just haven’t had to file yet. It’s senseless to follow a model which has proven to be bankrupting.

I do understand that a socialized plan like the VA system, or the British system, can work, but choosing those systems as the right way forward ignores the validity of free markets and ignores the scary thought of one federal agency running the medical world for 300 million people.


For conservatives, if you pull your old economics text book off the shelf, skim the chapter on monopoly. And ask yourself: “How do you guarantee competition in a free market?”

The answer is: You break up monopolies or you reform regulations which support collusion.

Since all reforms, both conservative and liberal, because both of them fail to make anti-trust monopoly-busting their central goal, it follows that reform cannot and will not succeed. We will take it on again some other time; probably after a national bankruptcy.

The voices on both the right and left don’t understand the problem. What a terrible waste. What a shocking revelation.


medicare johnson signs into law

President Obama’s reform cuts $400 billion from Medicare and Medicaid. The president says it will have no effect upon care for the elderly and the poor.  Yet 2007 spending on Medicare equaled $440 billion. Is the president wishing away almost a year of care for every person over 65? Are seniors stupid to be worried? Could they have some justification for being angry?

This is the most ambitious and cruelest lie any president has ever told. Unless you change the defective markets in medical insurance, prices will continue to go up.

reform cost overruns prediction versus reality_resize 250

If your economic philosophy is “God damn American”, then it makes sense for you to wave away with your royal hand $400 billion of expenses, and sit back and watch the planes crash into the building. Destruction of national finances is fun.

The president will get his way. Reform will pass and bankruptcy will follow. Give it three or five or ten years. Without conservative reform, bankruptcy will follow.

The voices leading the debate are misleading. They are incompetent. The diagnosis is an error. We, the patient, the country, financially we will die.


We all want to believe both sides are operating in good faith. What if one side has a psychological defect which allows one to argue in good faith and at the same time you are not sane so the argument is nonsense?

If you are living in a country which is the most successful user of free markets, and if you hate free markets, then the logical explanation for this bias is in the psychology of the economist or the president or the citizen.

How bizarre is it to hate free markets? Here’s what I compare it to: A creationist who prays to a God descended from blue Martians is a model of reason compared to a liberal who thinks free markets fail us. There’s much more evidence for God as a blue Martian. Do you think God is a blue Martian?

Earlier in the paper, I described how a liberal might attach themselves to a philosophy of “fairness”. That philosophy may logically lead to a single-payer system. I would counter the argument by saying: “We can assure fairness and use market forces to lower prices if we require ten insurance companies to sell the same policy you want the single-payer to provide.” Still, the logic and simplicity of the single-payer choice uses reason.  The economics of it is, in my opinion, frighteningly blind to the consequences of turning over health care for 300 million people to a government agency.  At least the prejudice is logical and in some ways defensible, with examples of success including the VA hospitals, Canada, and Britain.


What if the prejudice is not a good bias like “fairness”, but a bad bias, like “hatred” or “contempt”? What if, by its nature, a psychological defect drives the policy, rather than a logical argument?

What kind of person would hate himself or the world enough to ruin it?


A person who never had a father is a perfect candidate for a contempt-driven personality.

For a man, the absence of a father is a loss you don’t get over. That loss is the center of any male personality. A father is the first teacher. President Obama, despite the optimistic title of his autobiography (“Dreams From My Father”), had no father, and had a difficult start to life.

Does he hate the world for never having had a father? Does he, unconsciously, hate himself, thinking that there was some reason he deserved to be fatherless? We don’t know the answer, but we do know he found a substitute father.

Naturally, without a father, you are desperate for direction. You are susceptible to the influence of any person who will teach you. In a tragedy of historic consequence, President Obama attached himself to a racist mad-man hate-filled lunatic freak (Jeremiah Wright). The preacher of hatred is his real father. What does it do to the president if he listened to and learned from and idolized this substitute father for 20 years?


You are presidential-candidate Obama. Your step-father, your guide in life, your teacher, is revealed as the anti-thesis of wisdom and learning and fairness and leadership and courage. Everyone assumes you have learned what he is teaching. You cannot be elected if you share his philosophy.

wright reaches out preaching

Some leaders use hatred to promote their own glory. Some liberals use fairness to disguise their hatred. Rev. Jeremiah Wright is a perfect example of a person who used his hatred for his country to denounce the unfairness of our society. All of it was in the service of his own vanity -- which is the true point of everything he says.

You have a way out. In a speech before the entire nation you pretend not to know your step-father of 20 years. You didn’t know he was a racist, a mad-man, a hate-filled lunatic freak. By saying you didn’t know these things, you are saying you didn’t learn these things. You compare your step-father to your grandmother. By saying your grandmother is the same as the monster, you prove you will use anybody to get what you want.

Your sociopathic capacity for lying is so advanced, and the madness of the crowd which rules your party is so fervently disturbed, that they idolize your lies. The fools turn your fiction about your life and your step-father into a brave historic speech.

They don’t notice you used your grandmother as a sacrifice. Any sane judge of a man’s character would write down to zero the man who sacrifices someone in his own family. And if a man sacrifices his grandmother, the content of his character is malign, repulsive, unspeakable. And if his party doesn’t notice this astonishing fratricide, then they are beneath contempt.



What is driving the madness of your crowd President Obama? What qualification do they admire so deeply? What are your qualifications? First and foremost, you are black. Your party’s platform is openly racist. It’s a racist platform and a racist candidacy by a racist party. Your character, which Martin Luther King described as the key to a man, has no place in your qualifications because your character is disqualifying. Your race wins the race. It’s hysteria. It’s group think.  You are perfect for the job.

You will say anything to anybody. I have watched subprime mortgage sales persons employ exactly the same strategy which you use so expertly. Tell them what they want to hear. Everything will fall into place. After the presidency, your future in sales is unlimited.


What does it mean if you can lie to the entire country with a straight face on the subject of the man who is the greatest influence in your life? How do we explain your limitless capacity to deceive? How did you get to be so good at it?

That’s easy to understand. You are a black who has spent a life in a white world. Whites see you as something to fear or hate or shun or patronize. You are a foreigner. The natives make out of your every word and every action a performance. You are always judged. You are always on stage. You are always lying to appease the crowd. Your entire life has been an act of pleasing an unfair audience. It’s your true skill. You have been practicing since day one. You are a world-class pleaser. There’s another question to consider: Are you presidential? No, you are not; not if you lie to us about your teacher, and not if you denigrate your grandmother to further your own ambition.


Do you hate yourself for playing by the white rules? Do you hate the world for depriving you of a father? Do you hate your country because your step-father has taught you to hate it? Do you have contempt for the accomplishments of your country because you have never had to build anything?

This is not an ideal profile for a president, but it is your profile.


President Obama and Dr. Krugman play from the same book. They are twin personalities. They are true blood brothers.

Vanity is their God. Adulation is their goal. Egocentric gratification runs everything in their life. They are always on message and always on the message of themselves. They are childish spoiled children.

Either says anything to serve their religious solipsism. Every one of their words is sound and fury. They signify nothing.

These idolatrous pagans run our country. They will ruin it for fame. The fate of the country is irrelevant to their dreams of themselves.

Now we know why character in the president matters.


Enlightened medical reform for conservatives requires intense, loud, angry opposition to any current plan. Defeat know-nothing Democrats. Stage a sit in. Protest loudly. Provoke arrest and resist it.

eliot on vanity

The liberal intelligentsia in the United States is so psychotic they don’t believe in free markets. It’s madness of magnificent magnitude. Their dishonesty about their goals is now so obvious that they promote a public option by saying it will bring competition to the market, when what they openly vow in writing repeatedly is that the public option is a means toward the end of a single-payer or fully socialized system– a system with no competition.

A single-payer or fully socialized system is, by definition, a system without competition. It’s hard to get through one story from a liberal saying that the conservatives are arguing unfairly, when the liberal position on the public option is openly presented in a deceptive manner, is contrary to settled findings of economics, and has completely thrown the debate off the trail of reform that economics tells us to pursue.

Every minute of every day they use what the free market has given them – their food on the table, their home, their smart phone magically connecting them to anyone anywhere (with voice or text); their television program; their internet connection to find more information than any person in the history of the world; their quiet safe car; their flight to go on vacation; their hotel; the overnight package via UPS or FedEx; the software to organize their pictures; the camera – they have everything at a reasonable cost because of free markets.

Instead of a generous gratitude and respect for the miracles this system has given them, they denounce the system for its failures. They cluster around the unfairness of it. Is this a vanity project?


krugman anita dunn

The simple explanation for this mad reaction is that they know they don’t deserve all the things that they have been given. Why have others been given so much less? They know it’s not fair. This realization, about the unfairness of the world, it is not limited to liberals. It is an important moment for both liberals and conservatives.

For the young reader, searching for their direction in the world, there are two ways to handle this dilemma when you have to decide for yourself who you are and what you want to be:

The conservative says: God has given me more than I deserve. It is my job to make my family and my country stronger. My job is to preserve the progress we have made. My job is to add my work to the sum of work which I have inherited. I know every street, and building, and business was built of blood, sweat and tears. It’s hard to build something.  I honor and respect the work which has been done.

The liberal says: This system has given me so much but given so little to others. I am going to fight against the deep unfairness until the system has given everybody what I have. I have a moral obligation to the less privileged. It’s an outrage the way the poor are forced to live. I will not forget them. I will fight the system to correct its failures.


One co-conspirator of the liberal response: It may lead to a dislike of our country, of our military, of free markets, of any of our institutions, because the unfairness of the economy tarnishes all of these things. The president’s teacher is a perfect example of this theme of hatred. He proved hatred can be a guiding force for liberals. The president’s teacher hates his country. The president’s teacher hates white people. The president’s teacher loves hatred.

obama-grandmother_resize 180%

Grannie Takes a Bullet for the President: As a candidate, President Obama, in March 2008, compared his grandmother (above) to Rev. Jeremiah Wright. "I can no more disown him than I can my white grandmother," said Obama, in his famous race speech. The candidate then denigrated the character of his grandmother in front of the entire nation. He literally told all of the world she had made racist comments. He equated her words to Rev. Wright's words. Six weeks after the speech he disowned Rev. Wright. Eight months later she died. President Obama has to this day never been questioned seriously about his conduct toward his grandmother. If the press doesn't stick up for grandmothers, who do they stick up for? If the president doesn't stick up for his grandmother, why would you want to have anything to do with him ever?

Was the president smart enough to understand his teacher? Is there anybody in the wide world who doesn’t know President Obama was smart enough to understand his preacher?


A few weeks after President Obama compared Reverend Wright to his grandmother, the candidate claimed to understand his spiritual leader for the first time in their 20 years together. He dropped his step-father instantly.

Nobody called the candidate a coward for betraying his mentor. Nobody called the candidate selfish for using his grandmother. He never apologized to her.

Nobody in his party thought to denounce his cruel selfish use of a defenseless old and dying woman. The media avoided all judgment of right and wrong. Neither the Democratic Party nor the press wanted to spoil the candidacy.

They all climbed to the mountaintop. They loudly proclaimed their amoral emptiness. They sang in unison their prejudice in support of the candidate’s race. They pathetically violated the American Dream. They made Dr. King a joke. Their vanity is frightening. If you will use your grandmother, what else will you use? Will you use your country?

The answer is obvious. If you will use your grandmother, you will use anybody to get anything. You are a psychopath.


Does the president hate the United States? Does the president hate being black? Does he hate white people? Does the president hold in contempt the people who believe what he says? Does he believe in anything besides himself? Did her ever grow up? Did he ever learn right from wrong? Does he hate himself for having no principles? Does he think it’s funny he is president based upon a sham? Is he a scam artist?


"There are some that only employ words for the purpose of disguising their thoughts." Voltaire

That’s what I see. I see a standard-issue scam artist of outstanding talent. What kind of person follows a scam artist? The followers are as demented as the leader is disreputable.


President Obama and Dr. Krugman are destroyers.  Their word is a lie. Their bond is deception.

The country will suffer grave injury if their lies rule our world. In addition to their wholehearted embrace of deception, they don’t understand the first rule of business. They don’t understand the first rule of economics. They can’t understand either because they have never done anything.

They have missed the life-changing experience of starting and running a business. No economist or president can pass up this lesson. It’s a thousand times more instructive than perfect comprehension of the ten thousand best books. I am very confident they will know more about their limitations if they ever try such a thing.

It teaches you how hard it is to do something. Building a business is impossible and endless work. Trying and failing fills you with awe for the successful. You respect what the country, through all of those individuals, both the successes and the failures, has already made. You don’t hate it. You don’t have contempt for it. Unless you are a low life.

If you are a person who blames other people for your own failures, then you might hate it. If you place excess importance on your own importance and your own capabilities—you might disparage the work of others who have made your life and country and world.


What is the psychological basis for this rampaging error and cruel contempt for the accomplishments which we have all inherited? Is it self-important vanity? Is the liberal enterprise simply a vanity game?

I believe it is self-importance that motivates the liberal to demand a badge of fairness. The thinker wants importance, and fairness is both a goal and an excuse. Will an underlying theme of hatred or contempt–will that make self-importance more necessary? Are contempt for others and unwarranted self-importance a twin in one person, each impulse feeding off the other?

crosses on a hill

I think, in many cases, self-importance canonizes fairness. One may genuinely care for others, and each individual is different, but I see selfish ambition for recognition creating an ideology of caring. Those overly interested in themselves, and those who over value themselves, are triply blind. They incestuously couple hatred, contempt, vanity, fairness. This is an unholy alliance. Self-understanding loses.


Thus do we comprehend President Obama, Dr. Krugman, and their unstable worshipers. We must study these leaders. We must study this group psychology. Professional help is indicated.

They place their own importance above all. The redeemers are mad for themselves. Their disciples are mad for themselves. Each crowd member sees their superiority in their great leader.

cost trillions 2007 2017

If this cost projection is correct, national bankruptcy is just around the corner, and the present reform is simply a pantomime of action.

Recognition for oneself reigns preeminent in this personal delusion. In last place are the consequences of thoughts and words and deeds.

It’s completely backwards. It’s totally wrong. It’s malevolent. It is sociopathic.

The thinker is so blinded to reason by vanity, they say free markets don’t work, when they live in a world burning brightly with the enormous wealth of free markets. How could you get somebody to be so dumb? How could you make a crowd so dumb? It’s a rampaging disconnect from reason. A fugue state rules. The followers live in it.


President Obama and Dr. Krugman are pretenders. These spoiled children are witch doctors. Avoid the vicious quacks.

Listen carefully. They speak in strange tongues. Their languages are written by the devil. The message is hidden. The numbers are all reversed. Deception reigns in their kingdom.

The ink in their pen is a baby’s blood. Do not play their recordings backwards. You will be turned to stone.

Ambitiously oppose their nonsense. They are a cancer on the state. These fools are blood-sucking leeches. Their medicine does not work in this country. Condemn their incompetent malpractice.


A short sweet guide to reform: “Kill the Bills Do Health Reform Right” by Charles Krauthammer


Michael David White is a mortgage broker in Chicago.

%d bloggers like this: