Ralph Klein has gone and it is time to retire Ralph's World. Thanks to all of you who have supported this venture by contributing material and through your comments. It has been fun.

Should we get another blog underway? Let me know your thoughts by e-mailing me at johnnyslow@gmail.com.

John Slow
January 1, 2007

Tuesday, November 15, 2005

Health Economics 101 

Premier Klein, Health Minister Iris Evans, and everyone else who is involved in setting health care policy in Alberta need to read this article. It is called Health Economics 101 and it is written by US economist and New York Times writer Paul Krugman (see photo). Click here to read this short but to-the-point critique of private health insurance.

What makes Krugman unique is he explains why private health insurance doesn’t work. Most others in this debate just state their position either pro or con, point to a study or two to back up their position, and leave it at that.

Krugman's case against private insurance boils down to three things; risk, selection, and social justice. Have a look at his article and then see how it relates to Alberta and Premier Klein’s Third Way initiatives

Risk – In the US a mere 5% of people account for half the total medical costs. It is likely the same story in Alberta; Albertans are pretty much the same as Americans when it comes to medical problems. If you’re part of the lucky 95% you probably don’t have many concerns. If you are part of the unlucky 5%, your medical expenses will be crushing unless your government provides for you, or you are very wealthy, or you have good private insurance. The problem is that you don’t choose to be in the 5% group; it just happens. It is the risk we all have foisted on us by life and that risk increases as we get older. Premier Klein’s chosen solution for this risk problem is to provide private insurance and minimize what the government needs to provide.

Selection – Private insurance companies are in business to turn a profit, as it should be for any private company. This means they try to maximize the premiums and minimize the payouts. The main way they accomplish this is by choosing only healthy people as clients and/or charging higher rates for those that are less healthy. This screening process unfortunately adds substantially to their administrative costs; costs which must be reflected in the premiums. Will the Alberta government have to set up an expensive new bureaucracy like the AIRB for auto insurance to try and ride herd on the health insurance companies or will they just give them a free reign?

Social justice – What does the government do when sickness or injury visit those who don’t have insurance either because they can’t afford it or no one would sell it to them because of their pre-existing conditions. Well they don’t let them die. Instead they will have to set up some sort of welfare healthcare system like Medicaid in the US and this is going to cost money. In addition another expensive bureaucracy will be needed to weed out potential abusers and administer means testing.

As Krugman concludes, the free market never worked for health insurance and never has. You have to ask yourself why the Klein government continues their relentless journey down this track. Is it free market ideology? Lobbying pressure from the health insurance companies? Simple pig-headedness?

I wish we knew. One thing is for certain. It is going to cost us a lot more.

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