Public Policy for Health Care

54 Pages Posted: 17 Sep 1996 Last revised: 15 Aug 2009

See all articles by David M. Cutler

David M. Cutler

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: May 1996

Abstract

This paper reviews the public sector role in the provision of health care. A first role of the government is to use tax policy to correct externalities associated with individual behaviors. Estimates suggest that the external effects of many `sins' such as alcohol consumption are greater than current taxes on these goods. A second role of the government is to correct distortions in markets for medical care and health insurance. Markets for health insurance have traditionally not offered a choice between cost and the generosity of benefits. As a result, there have been incentives for excessive technological development, particularly technologies that increase spending. Once technologies have diffused widely, they are overutilized. Policies to increase choice in insurance markets could increase welfare, provided they limit segmentation on the basis of risk.

Suggested Citation

Cutler, David M., Public Policy for Health Care (May 1996). NBER Working Paper No. w5591. Available at SSRN: https://ssrn.com/abstract=4222

David M. Cutler (Contact Author)

Harvard University - Department of Economics ( email )

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