Health Insurance: Market Failure or Government Failure?

Abstract:     
Health insurance is once again on the policy agenda, and it is déjà vu all over again. There are the same statistics and anecdotes about the uninsured. There are the same reports by government agencies, think tanks, and do-gooder organizations. There are the same policy entrepreneurs, pushing old wine in new (and not so new) bottles, based on the same appeals to social solidarity, self-interest, or both. The interest groups are back in force as well.

Reform proposals are also being pushed by all the usual suspects. The reform proposals vary in their specificity, but all (either implicitly or explicitly) identify the source of the problem as market failure - and promise new regulations and more taxes to fix the problem. This article makes the case that government failure should occupy center-stage in understanding how things came to look the way they do. Rather than market failure, it is our inefficient and perverse regulation of health insurance that should be the focus of our ire, and of regulatory reform.

Keywords: health insurance, regulation, public choice, federalism

JEL Classifications: I10, I11, I18

Working Paper Series