Government Bad Health
by John Goodman

I am probably the only person you know (or are likely to meet) who thinks all the major problems in our healthcare system are caused by bad government policies.

If you want to see the case for this position, look at the article I wrote for the Journal of Legal Medicine.  In it, I ask readers to perform a thought experiment: identify the major ways in which government policies create perverse incentives to do socially bad things.  Then imagine replacing those harmful policies - not with good polices, but with polices that are completely neutral, I call this the "do no harm" approach to public policy.

Here's how it works:

Distortion Number 1: Our system of government funded (and mandated) free care encourages people to forego insurance and rely on the charity of others.

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 Number 2: 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 Number 3: 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 Number 4: 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.

Distortion Number 5: Largely in response to the problems created by all of the above, government has essentially outlawed a real market for risk - encouraging individuals to be uninsured while healthy, secure in the knowledge that insurance will be available at premiums totally unrelated to the expected cost of their care if they get sick.

Neutrality Solution: Like the market for life insurance, allow the market to price and manage risk.

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. And there are many more harmful distortions yet to be removed!

John C. Goodman is President of the National Center for Policy Analysis.