NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Public Policy for Health Care

David M. Cutler

NBER Working Paper No. 5591
Issued in May 1996
NBER Program(s):   AG   HC   PE

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.

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Document Object Identifier (DOI): 10.3386/w5591

Published: A.Auerbach, ed., Fiscal Policy: Lessons From Economic Research, Cambridge, MA: MIT Press, 1997.

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