Wednesday, July 08, 2009

'Cost vs Efficiency'   [Veronique de Rugy]

Harvard University's economist Greg Mankiw has a good post (two, actually) on Medicare's administrative costs. He argues that these costs aren't as low as people say they are, and that low cost doesn't automatically mean high efficiency. He writes:

Advocates of government-run health insurance like to point to Medicare's low administrative costs (which, as I noted yesterday, is a controversial claim). But even if that factual claim were true, the argument would hardly be dispositive as to the greater efficiency of a publicly run system. As I put it in my recent Times article, "True, Medicare’s administrative costs are low, but it is easy to keep those costs contained when a system merely writes checks without expending the resources to control wasteful medical spending."

Over at Marginal Revolution, Tyler Cowen also comments on administrative costs here. Finally, Alex Tabarrok, has great post about how peculiar he finds this debate. It's way worth reading. My favorite part:

I find the debate peculiar for a number of reasons:

1)  Picking out one measure of health care "costs" to compare systems is sadly reminiscent of the arguments for socialism.  Do you remember those arguments?  Under socialism:

• "Think of how much money we will save on advertising!"

• "Socialism will lower costs by maximizing economies of scale!" 

• "Money will be used for production not profits!"

Exactly these arguments are regularly trotted out in the debate over administrative costs in health care so color me unimpressed.  To be clear, the point is not that these statements are false - the point is that these premises to the argument are all in some sense true it's just the conclusion, socialism is more efficient than capitalism, which turned out to be false.  We tried that and it didn't work. In other words, you have to compare systems not arbitrarily pick out for comparison one type of costs."

07/08 03:23 PMShare