[July 7, 2007 @ 7:24 am] David Hogberg

One of Don Luskin’s readers had an exchange with Paul Krugman over what drives health care costs in this country. The reader summed up the exchanged thusly:

As you can see Mr. Krugman made a misstatement about insurance company overhead costs (easily fact checked from financial statements) and failed to address the true drivers of healthcare cost inflation and he mistakenly believes that controlling the main drivers of healthcare cost inflation means rationing care. These kinds of fatuous statements by politically motivated economists need to be countered wherever they appear. I found CAHI’s paper, “Medicare’s Hidden Administrative Costs”, to be a partial rebuttal of Krugman’s statements. On examination of public company health insurer’s financial statements I found their overhead costs falling as a percentage of medical costs (benefit payments). If they were “the fastest growing component of costs” as Mr. Krugman states they would be increasing on a percentage basis with respect to benefit payments. This is really sad.

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