Paul Krugman, the VA Scandal and Socialized Medicine

It is unseemly to take the VA scandal as an opportunity to enjoy watching Paul Krugman being proved wrong about universal health care.

Unseemly because the first order of everyone’s business should be to fix the system. If the system cannot be fixed right away, the government should find other ways to provide medical care to veterans. Of course, as some reports have pointed out, that would be an admission that private enterprise can do better than socialized medicine, and we would not want that... would we? Government employees have what we will call a perverse incentive to keep it all in house.

If, as has been reported, terrorists at Gitmo get better health care than veterans get from the VA, something is radically wrong. And if, as Michelle Malkin reported, illegal immigrants are receiving better health care than veterans, something is very, very wrong.

The problem needs to be fixed before it needs to be politicized. And yet, since President Obama used the condition of the VA to attack the Bush administration and since he promised to clean it up post haste, it feels a tad bit naïve to imagine that the issue will not be politicized before it will be fixed.

Naturally, Republicans have used the VA scandal to cudgel Democrats. But they also tried to make it all bipartisan. And yet, hopes for a bipartisan approach to the problem were scuttled yesterday when Senate Democrats voted down the VA Accountability Act—which had been passed on a bipartisan basis by the House.

And naturally, House minority leader Nancy Pelosi has blamed it all on the Bush administration.

Be that as it may, conservative commentators have done their job by pointing to the larger issue. Liberal pundits, led by Paul Krugman—who else?—have long since trotted out the VA as a test case proving the greatness of socialized medicine.

In 2006 Krugman used the VA as proof that that socialized medicine worked.

He wrote:

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 covers all aspects 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.

Moreover, the V.H.A., as Phillip Longman put it in The Washington Monthly, ''has nearly a lifetime relationship with its patients.'' As a result, it ''actually has an incentive to invest in prevention and more effective disease management. When it does so, it isn't just saving money for somebody else. It's maximizing its own resources. In short, it can do what the rest of the health care sector can't seem to, which is to pursue quality systematically without threatening its own financial viability.''

For the lesson of the V.H.A.'s success story -- that a government agency can deliver better care at lower cost than the private sector -- runs completely counter to the pro-privatization, anti-government conventional wisdom that dominates today's Washington.

In 2011, Krugman added this:

Crucially, the V.H.A. is an integrated system, which provides health care as well as paying for it. So it’s free from the perverse incentives created when doctors and hospitals profit from expensive tests and procedures, whether or not those procedures actually make medical sense. And because V.H.A. patients are in it for the long term, the agency has a stronger incentive to invest in prevention than private insurers, many of whose customers move on after a few years.

And yes, this is “socialized medicine” — although some private systems, like Kaiser Permanente, share many of the V.H.A.’s virtues. But it works — and suggests what it will take to solve the troubles of U.S. health care more broadly.

As wrong as he was, Krugman did raise the right question. Can a health care system function more or less effectively if there are no “perverse” profit incentives? Would an army of presumably virtuous bureaucrats, motivated more by the wish to do good and less by the wish to earn a profit, deliver better health care? Are for-profit medical practices more interested in making money than in caring for patients?

Theoretically speaking, Krugman is trying to establish a beach head for socialism. If profit makes health care inefficient and ineffective, then it will surely do the same for the rest of the economy.

This morning, the Wall Street Journal responded to Krugman in an editorial:

Ah, yes, the VA lacks the evil profit motive. What the egalitarians ignore, however, is that a government system contains its own "perverse incentives," such as rationing that leads to treatment delays and preventable deaths, which the bureaucracy then tries to cover up. This isn't an accident or one-time error. It is inherent in a system that allocates resources by political force rather than individual consumer choices. The VA is ObamaCare's ultimate destination.

VA officials claim backlogs are due to difficulty hiring and retaining staff, but that's another problem endemic to government health care. Compensation is often too low to attract doctors, particularly in high-demand specialties like physical therapy and gastroenterology. While VA medical centers can refer patients for private consultations to reduce backlogs, they rarely do.

The history of socialism has demonstrated the Journal’s point: if pay does not depend on performance, why work? It is not surprising that VA physicians see far fewer patients than do those who are in private or hospital practice. 

Moreover, if a company does not make a profit, how can it re-invest in new plant and equipment? How can it expand its business and better compete against other companies?

If virtuous bureaucrats are charged with this task, what makes you think that they will want to do what is best for patients they are treating or the companies they are managing and not what is best for themselves and for the political special interests that put them in power?

One suspects that Krugman will eventually respond by saying that the VA does not work as well as it should because the private marketplace has been siphoning off the best physicians. If there were no private market of health care, all of the best physicians would be happily working for the government.

And yet, no one is obliged to practice medicine. If another occupation provides more job satisfaction and higher prestige, it will probably attract more, better students.

Similarly with socialist enterprise. If the government takes over the widget industry, because it believes that the profit motive is causing the companies to be inefficient, then it will have to compete against foreign companies that do not suffer the same level of bureaucratic control. It might try to shut down competition with mercantilist tariffs against foreign-made widgets, but the end result will be that American consumers will only be able to purchase substandard widgets at inflated prices.

How do you think that will work out?