What Are The Alternative Approaches To Healthcare Reform Of The Government?

The combination of rising costs, a growing number of uninsured, and lagging health status has led to widespread calls for fundamental health care reform in the United States. What are the major alternatives? At one extreme is the pure market solution. With this approach, which was traditional in most countries until this century, each family pays 100 percent of its medical expenses and there are no government programs providing for public goods or shouldering the burden of medical care for the poor.

At the extreme is a nationalized health service, in which health care is publicly provided to all on an equal basis. This approach, used in the Medicare system for the elderly in the United States, solves many of the major market failures. Because health care is universal, there is no adverse selection, and government can provide the public goods of information and prevention. However, critics of nationalized health service point to a number of unattractive features. First health care would be paid for in taxes or mandatory fees, increasing tax rates, raising business costs, and harming incentives to work and save. Second, since health care is free under this plan, moral hazard would be serve because consumers would have few incentives to limit their use of services, medical costs would grow ever more rapidly.