APPLYING THE ECONOMIC WAY OF THINKING TO HEALTH POLICY
April 3, 2007
Health care is broken because government policies create perverse incentives to do socially bad things. Imagine replacing those harmful policies --- not with good polices, but with polices that are completely neutral. This is the "do no harm" approach to public policy, says John C. Goodman, president of the National Center for Policy Analysis.
Here's how it works:
- Distortion: Our system of government funded (and mandated) free care encourages people to forego insurance and rely on charity.
- Neutrality Solution: Let government offer just as much financial incentive for people to privately insure as the expected free-care spending under the current system, making private insurance just as financially attractive as reliance on charity care.
- Distortion: The existence of government funded insurance (Medicaid and SCHIP) encourages people to drop their private coverage and become insured at taxpayer expense.
- Neutrality Solution: Let people apply their Medicaid subsidy to private insurance, making the two types of insurance equally attractive from a financial point of view.
- Distortion: While the current system provides lavish tax subsidies for employer-specific insurance, it provides very little tax relief for people who purchase individually owned, personal and portable insurance.
- Neutrality Solution: Create a level playing field for all forms of insurance under tax law.
- Distortion: Although there is in principle no limit to the amount of tax subsidy available for spending on third-party insurance, the tax relief for self-insurance (though a savings account) is very limited and tightly constrained.
- Neutrality Solution: Put third-party insurance and individual self-insurance on a level playing field under the tax law.
Notice that in adopting these solutions we are not trying to do good. We are mainly trying to avoid doing harm. The result: a system so completely different from our own, it would hardly be recognizable, says Goodman.
Source: John C. Goodman, "Applying the "Do No Harm" Principle to Health Policy," Journal of Legal Medicine, vol. 28, Issue 1, 2007.
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