A Public Choice View of Government in Healthcare

On the political scene, America's rising health care and insurance costs continue to be a main topic of debate. An article published in May by Forbes magazine conveniently frames the health care debate in terms of public choice. It argues that the government should spend more money on providing true public goods and less on goods that are simply beneficial to the public. Health care clearly does not satisfy the non-rival and non-exclusionary conditions necessary for something to be a public good. It should then, in theory, be possible for private companies to provide it in an efficient way. This is why, according to the author, the government should focus on providing true public goods which cannot be provided privately and stay out of healthcare to the extent possible.

But if health care and insurance can be provided efficiently by private firms, then why have costs continued to rise far above those expected for an economy of our size? This interesting video describes components of health care which are higher than expected and claims that the area with the largest discrepancy, that of $500 billion, is due to a lack of negotiation power with companies providing health care services. In other words, there are not many alternatives for medical services and so consumers lose the leverage that competitive market theory assumes they have.

So perhaps public choice can provide a solution. The New York Times published an article on competitive bidding laws and mentions how a "pilot program had reduced Medicare costs by 42 percent." So in this example when the government focused on enforcing the free market, health care prices dropped. The free market institution is non-rival and non-exclusionary, and therefore is something that is not likely to be provided efficiently by private companies. It seems to me like the government should focus on providing as close to a perfectly competitive market as possible. The more allocatively efficient outcome should follow naturally - and with it lower costs for consumers.


Sorry for the length - I look forward to reading the comments.

Some Taxes Might Make Our Future Society Healthier.

This New York Times article discusses the various arguments that economists and others make for imposing taxes on consumption as a possible way to raise tax revenue during tough economic times. The article states that there has often been economic support of “taxing consumption rather than income, on the grounds that consumption taxes do less to discourage saving, investment and economic growth.” The author of the article then proceeds to argue that consumption taxes are usually placed on goods which, when consumed, produce unfavorable effects on third parties not involved in the consumption of the good, aka (in terms we have used in class) goods that have negative external costs in consumption. The author argues that a lot of the time, when the government imposes a specific tax on the consumption of a good with negative externalities, like gasoline, the consumer will internally think more about the costs their gasoline consumption has on the environment, road traffic, and their neighbors’ daily activities, which is good for society as a whole (especially if the consumer decreases their gasoline consumption).

However, this article was especially interesting to me because it introduced new information about consumption taxes and the role of government in individuals’ lives that I had not thought about before. In the instance of a good like cigarettes, is the negative externality produced when the good is consumed more detrimental to society or to the consumer himself? The article argues that “if the consumption induces say, smoking- or obesity-related illness, it raises health care costs, which we all pay for through higher taxes or insurance premiums…Yet this argument has a flip side: if consumers of these products die earlier, they will also collect less in pension payments, including Social Security .” When considering all of these elements, what is the actual external cost of consumption of cigarettes on society? How does the government know how to tax cigarettes appropriately (as cigarettes will always be taxed)?

On a similar note, the article also addresses the issue of negative costs of consumption on the actual consumer in the future aka “the person today enjoys consumption, but the person tomorrow and every day after pays the price of increased risk of illness.” As the title of this article suggests, should we give the right to tax specific goods which produce negative costs of consumption for the consumer, like drinking soda, to the government in order to save our future selves from our current selves? If we do, this means society acknowledges that one’s present self is a different person from one’s future self, which is an interesting idea to consider. Also, would taxing soda and other high sugar goods have a positive effect on society today? Or just in the future? How would individuals in society feel about the government placing taxes on goods that they deem unhealthy for future society? Is this giving the government too much control? This article raises many valid points as to how negative costs associated with consumption can be appropriately taxed, but it also seeks to question if it is in the public’s best interest to give the government the right to decide what is healthy and what is not for individuals.