NCPA - National Center for Policy Analysis


January 24, 2005

America's health care system is having problems because it provides the wrong incentives, says Merrill Matthews of the Weekly Standard.

The growth of tax-free, employer-provided health insurance after World War II is at the heart of the problem because such a system insulates employees from the costs of health care and health insurance, explains Matthews:

  • Most workers have no idea how much health care or health insurance costs; when someone else is paying the bill, workers will tend to want access to virtually any procedure or product available.
  • Individuals who purchase health insurance outside of their employer are penalized because they do not receive a tax break; each year the government spends $188 billion in subsidies for employer-provided care.

Ultimately, without the normal buyer and seller roles that make markets work are dysfunctional in the health care system. Matthews is optimistic that the Bush administration reform proposals will change the economic incentives:

  • Leveling the tax burden: anyone buying health insurance outside of their employer will receive a refundable tax credit of $1,000 per adult and $500 per child.
  • Expanding health savings accounts: allow the costs of high-deductible health insurance to be fully deductible.
  • Tort reform: cap noneconomic damages resulting from medical malpractice lawsuits; Texas has experienced a 80 percent decrease in malpractice filings in most major counties after passing such legislation a year ago.

Source: Merrill Matthews, "Bush's Unheralded Health Care Agenda: It's Less Modest than You Think," Weekly Standard, December 27, 2004.


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