If the aim is to subsidize the poorest members of society, or ensure that no one need go without catastrophic coverage, it would be far cheaper and more effective to tax the working folks directly and forthrightly, and turn over the money to the neediest — and let them buy their own health insurance. If the government fear is that they would choose to spend the money on something else, then give them vouchers for medical care. But keep it simple. As an act of redistribution, that would at least have the virtue of being transparent, reasonably predictable and minimizing the cut for bureaucratic or politically well connected middlemen. By contrast, it is vastly more expensive, uncertain, corrosive to choice and destructive to freedom to embark on redistribution via a vast machinery of state planning and regulation. An analogy might be the old crony state of the Philippines under Ferdinand Marcos. Had Marcos run a free-market economy, levied reasonable taxes, and then helped himself to a multi-billion dollar presidential salary from the state coffers, he might have faced protest for his greed, but he would quite likely have avoided beggaring his country. Instead, he set up crony monopolies, vastly enriching himself and his pals by way of throttling business for the multitude. In the end, he was overthrown, but his country paid — and is still paying — an enormous price for the the system he set up. For every billion he squeezed out of his crony patronage system, the Philippines lost many times that in wealth foregone. Deadweight loss.
Another point, rarely mentioned in all the talk about rising healthcare costs in America over the past few decades, is what those dollars have actually been buying. It is not only the costs that were rising, but the benefits in terms of prolonging life and enhancing its quality. My grandmother died in 1965 at the age of 63, of pneumonia followed by a heart attack. These are things far more readily dealt with today. So are many cancers, chronic diseases, or sheer accidents. We now have scans, heart medicines, laparoscopic surgeries, highly tailored cancer drugs — a host of methods that a few decades back were science fiction. Surely the cost of medical care would have been lower had we skipped all those costly inventions, and stuck with aspirin, penicillin and the surgical procedures of 1952. For that matter, most Americans spend a lot more on computers these days than did their counterparts some 50 years ago — in that broad and misleading sense, computer costs have gone through the roof. But then let’s factor in what a dollar spent on computers will buy now, versus then. In medicine, the question is not solely the unit price of a given procedure, but the tradeoffs and potential benefits involved.
There are a lot of ways to keep costs down. Allowing real competition in a real marketplace is one way — and allows doctors and their patients to choose, thrive and adapt. Smothering medicine with state planning is another — fraught with deadweight loss.