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Health Care: The Problems

Paul Krugman

Lesson time 15:58 min

Health care is central to American lives and the American economy. Paul breaks down the economics of the private health care market and explains two “market killers” in our current system.

Paul Krugman
Teaches Economics and Society
Nobel Prize-winning economist Paul Krugman teaches you the economic theories that drive history, policy, and help explain the world around you.


Health is a very big deal in modern society and in the economy. I mean, your health always mattered, but there's a lot more than we can do about it now, but we also spend an awful lot of money on it. So in the US now, we spend something like 17% of our national income on health. You know, in any given year, about half the population essentially spends nothing on health care. But when it hits, it can be enormously expensive. And so having a system that-- having something, having insurance that will pay for health care and having a system that makes sure that the insurance actually does lead to adequate health care is a hugely important part of making people's lives decent. Americans often have a picture in their minds of what their economy is about, particularly about what their local economy is about that's out of touch with reality. So take a place like West Virginia. Obviously, a very pro-Trump state in the last election. And in the minds of West Virginians, they still think of coal. And the thing is, there haven't been a whole lot of coal miners in West Virginia for a long time. And so only about 3% of the workforce is in mining. 15% of the workforce is in health and social assistance. What people really do for a living in West Virginia is they work in hospitals, they work in clinics. The point is, actually, if you ask, what does America do for a living right now, you probably want to think about health care. If you look at, what are the 10 fastest growing occupations in America, I think eight of them are basically something that you might have basically described as being a nurse. So this is what we do. And so the economics of health care is absolutely central to everything that we talk about in terms of economic policy. Health care pretty much follows the 80/20 rule. 20% of the population accounts for 80% of the health care costs. 5% of the population accounts for typically something like half. Suppose I'm running a health insurance company. I have a bunch of people paying in premiums, and then I am prepared to pay their health costs if they need treatment. How high a premium do I need to charge? Well, I need to be charged enough to cover the expected, the average costs of a member of the people who have signed up with my health insurance company. If it's a pretty sick group of people, if they're all, you know, they're all 62 years old and have lots of medical problems, then I'm going to have to charge very high premiums. If it's all healthy 23-year-olds who run four miles a day, then I won't have to charge very much. The underlying health and therefore the underlying risk of expensive treatment depends very much on the composition on what kind of people have signed up. So if you're going to have any kind of system where private providers are providing health insurance, it's critically important to them that the risk pool, the mix of people that they're covering contain a sufficient fraction of healthy peo...

Think like an economist

For Nobel Prize-winner Paul Krugman, economics is not a set of answers—it’s a way of understanding the world. In his economics MasterClass, Paul teaches you the principles that shape political and social issues, including access to health care, the tax debate, globalization, and political polarization. Heighten your ability to read between the lines and decipher the underlying economics at play.


Students give MasterClass an average rating of 4.7 out of 5 stars.

I never thought I would enjoy economics, but Paul made it so enjoyable and easy to understand.

I am a 62 year old student of lifelong learning. Most of what I glean from a course like this is a different perspective and an appreciation for a different interpretation.

Great Class, A real good insight on how economics work. At the end it all comes down to people.

Sooo insightful! I enjoyed it immensely and learnt a lot


Brandon B.

I enjoyed all of these lessons, even when I had to pick away from the liberal bias's at times (I myself and liberal as well) I would hope that any future economic classes might include the reasons for the opposing schools of thought. Economics is a very complicated subject and is mostly applied theory. Learning the reasons for why people think certain ways can help with our own understanding and our ability to decide between very heavy economic models and suggestions.

Paulo S.

I am very disappointed with the last 3 lessons. I am here to learn about the economy not to hear his liberal agenda.


This graph of life expectancy vs expenditure helps illustrate the point about health care in the US. A similar graph can be made using maternal mortality - another marker of health care system effectiveness. I suspect a big part of the reason the USA is such a striking outlier is that while medical care is very good for people with good insurance, a big proportion of the total population can't afford it, and this brings the average down. So it's a story about inequality as well as inefficiency. Note that the US began to diverge from other countries in the early 1980s, cf Prof Krugman's earlier points about wealth inequality beginning to develop under Regan after the post-war years.

Matt R.

our health care system isnt perfect by any means but its a better alternative then anything else that i have seen. other places arent perfect like he makes it seem. go get medical help in mexico or canada and tell me that its better. the biggest issue in my opinion is lifestyle. we need a better education system on how to develop better health habits.

Stefanov A.

I would say after watch this episode, then go read the growth delusion book by David Pilling. It will give more insights on why the US health care system is kind of messed up...


You have got to be kidding. The reason health care is through the roof is because of tort laws.

Eric C.

Overall, valuable explanations on many parts of economics, but is much more politically colored than I thought was needed. Also the healthcare segment is oversimplified from a provider's standpoint.

I see more fast food restaurants on my block than I saw 3 months traveling Europe. Not to mention the huge group of people in America who actively don’t seek work vs other countries.


Oversimplification and misdiagnosis. Health insurance admin costs are not the primary culprit. The largest contributors to our high healthcare costs include our high paid practitioners and hospitals relative to other countries (and the opacity of cost and quality), our US medical innovations which are best in the world and expensive, and the unhealthy state of Americans relative to other advanced societies. Let’s fix the key elements of what we have and not allow our federal government to bring its inefficiency and misaligned interests to a large and important piece of our economy.


Again Krugman is letting his ideologies creep into the masterclass about economics. He shows a life expectancy chart by country, and uses this to justify the inefficacy of the US healthcare system. The level of nuance ignored is frankly exasperating. That's not to say that the US healthcare system isn't deeply flawed - but not all health outcomes can be attributed to the healthcare system.