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Health Care as a Deficit Reducing Stimulus

Anthony Randazzo
August 5, 2009, 4:24pm

Economist Art Laffer launched an attack on the current version of ObamaCare in an op-ed for The Wall Street Journal today:

The bottom line is that when the government spends money on health care, the patient does not. The patient is then separated from the transaction in the sense that costs are no longer his concern. And when the patient doesn’t care about costs, only those who want higher costs—like doctors and drug companies—care.

Thus, health-care reform should be based on policies that diminish the health-care wedge rather than increase it. Mr. Obama’s reform principles—a public health-insurance option, mandated minimum coverage, mandated coverage of pre-existing conditions, and required purchase of health insurance—only increase the size of the wedge and thus health-care costs.

According to research I performed for the Texas Public Policy Foundation, a $1 trillion increase in federal government health subsidies will accelerate health-care inflation, lead to continued growth in health-care expenditures, and diminish our economic growth even further. Despite these costs, some 30 million people will remain uninsured.

But all is not criticism. Mr. Laffer offers an alternative, a market-based idea, but an option Congress will never consider because it takes power out of their hands:

A patient-centered health-care reform begins with individual ownership of insurance policies and leverages Health Savings Accounts, a low-premium, high-deductible alternative to traditional insurance that includes a tax-advantaged savings account. It allows people to purchase insurance policies across state lines and reduces the number of mandated benefits insurers are required to cover. It reallocates the majority of Medicaid spending into a simple voucher for low-income individuals to purchase their own insurance. And it reduces the cost of medical procedures by reforming tort liability laws.

By empowering patients and doctors to manage health-care decisions, a patient-centered health-care reform will control costs, improve health outcomes, and improve the overall efficiency of the health-care system.

Note that with a system like this insurance plans would be portable from job to job, decreasing employer contributions and might increase salaries and/or company profitability as costs drop. That's health care as a stimulus—a deficit reducing stimulus I might add.


Anthony Randazzo is Director of Economic Research


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