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Socialism and Medicine, Part 2
...It is clear that economic calculation is much clearer and more exact if one is not depending on third parties for payment, so it is not surprising that when insurance companies and government officials realized they did not have bottomless pits of cash to pay to medical professionals, they began to limit what they were willing to pay. Despite the claims of economist Paul Krugman, who writes a column for the New York Times, and others who advocate socialist medical care, all third-party payers, be they insurance firms or governments, face cost constraints and have sought to limit their own exposure.

At the same time, the system has worked to make things more costly on the supply side. For example, state legislatures are fond of mandating new programs requiring all private insurers to provide certain benefits, such as yearly mammograms or mental-health coverage. Invariably, as health care becomes increasingly politicized, politicians seek to force insurers to carry the programs that are politically popular, even if they drive up costs and make insurance less affordable for private customers. ...

...The last statement will come as a shock to people who are convinced after reading Paul Krugman’s New York Times columns that medical care in this country is pure free enterprise and that it is free enterprise that is driving up the costs. In a recent column, Krugman declared that medical care in the United States is costly because of high-quality medical capital such as MRI and CAT scan devices. His reasoning goes as follows:

# Those devices are expensive.
# Doctors charge a lot for tests from those machines, since the devices are costly.
# Because the tests are expensive, they drive up health care costs.

If Krugman were not an economist, perhaps he could be forgiven for constructing such a faulty chain of economic logic. First, and most important, he is not examining what the CAT scan and MRI devices replace. They permit doctors to quickly engage in exploratory surgery in which they are able to quickly diagnose different disorders. Before the advent of these devices, doctors had to perform invasive procedures for which there was a recovery period; today, they are able to quickly diagnose problems at a fraction of the total costs that once were involved in such examinations. ...