The Aroman food crisis: a fable with a lesson for national health insurance

Abstract

An analogy is always imperfect. Nevertheless, at times it is an effective way to communicate an insight. This paper uses an analogy to examine the consequences of attempting to achieve health sector efficiency through regulation, instead of consumer cost-sharing. It is suggested that as long as hospital care continues to be virtually "free" to patients at the time of use, such regulation may well do more harm than good. Moreover, a national health insurance plan that would make all medical care "free" to patients, and would pay for all health care through taxes (the proposed Health Security Act), would not only generate significant inefficiency; but, in contrast to the intentions of its supporters, would prove harmful to the poor and the elderly, by shifting scarce Federal tax dollars away from the programs that assist them in order to pay the medical bills of middle and upper income households. It is therefore urged that we enact income-related catastrophic national health insurance, that would place a ceiling, which varies with household income, on the financial burden a household must bear; but at the same time, would require most families to pay part of their own medical cost out-of-pocket, so that consumer cost-consciousness can help promote health sector efficiency.