BRINGING THE MARKET TO HEALTH CARE
September 17, 2007
Presidential candidate Mitt Romney's recent health-care reform proposals, which rely on free-market principles and federalism, will go a long way to fixing our health-care system's woes, say John F. Cogan, a senior fellow at the Hoover Institution and R. Glenn Hubbard, dean of Columbia Business School.
The centerpiece of Romney's plan is to attack the tax code's discrimination against cost-effective private insurance. How would he accomplish this?
- Allow individuals to deduct out-of-pocket health-care expenditures from their taxable income,
- Allow individuals who purchase health insurance premiums on their own -- rather than through their employer -- to deduct health insurance premiums.
- Expand Health Savings Accounts (HSAs) by eliminating the requirement that a qualifying health plan contain a high deductible.
Virtually all observers have argued that the U.S. tax preference for employer-provided health insurance encourages overconsumption of health services:
- It creates a large financial incentive for workers to purchase as much medical care as they can through their employer's insurance plan by enrolling in health plans with high-premiums, but low-deductibles and coinsurance payments.
- Such plans, by making the purchase of health-care services appear to be less costly than they really are, create a "moral hazard" that leads to overconsumption of health-care services.
The key to reducing the U.S. health-care system's excessive cost without damaging its ability to innovate is to allow competitive market forces to operate. These forces have worked in every other market to keep costs low and improve quality. There is no reason why they won't work in health care. Attacking the tax code's bias against efficient and cost-effective health insurance is fundamental to creating an economically sound health-care system, say Cogan and Hubbard.
Source: John F. Cogan and R. Glenn Hubbard, "Bringing the Market to Health Care," Wall Street Journal, September 15, 2007.
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