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Public Policy for Health Care


  • David M. Cutler


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

  • David M. Cutler, 1996. "Public Policy for Health Care," NBER Working Papers 5591, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5591
    Note: AG HC PE

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    References listed on IDEAS

    1. Jonathan Gruber & James M. Poterba, 1996. "Tax Subsidies to Employer-Provided Health Insurance," NBER Chapters,in: Empirical Foundations of Household Taxation, pages 135-168 National Bureau of Economic Research, Inc.
    2. Daniel P. Kessler & Mark McClellan, 1996. "Do Doctors Practice Defensive Medicine?," NBER Working Papers 5466, National Bureau of Economic Research, Inc.
    3. A. W. Coats, 1995. "Comment," History of Political Economy, Duke University Press, vol. 27(5), pages 157-161, Supplemen.
    4. Samuel H. Preston & Michael R. Haines, 1991. "Fatal Years: Child Mortality in Late Nineteenth-Century America," NBER Books, National Bureau of Economic Research, Inc, number pres91-1, January.
    5. Daniel Kessler & Mark McClellan, 1996. "Do Doctors Practice Defensive Medicine?," The Quarterly Journal of Economics, Oxford University Press, vol. 111(2), pages 353-390.
    6. Fuchs, Victor R, 1996. "Economics, Values, and Health Care Reform," American Economic Review, American Economic Association, vol. 86(1), pages 1-24, March.
    7. Henry J. Aaron, 1996. "Health Care Reform: The Clash of Goals, Facts, and Ideology," NBER Chapters,in: Individual and Social Responsibility: Child Care, Education, Medical Care, and Long-Term Care in America, pages 107-142 National Bureau of Economic Research, Inc.
    8. D. E. Moggridge, 1995. "Comment," History of Political Economy, Duke University Press, vol. 27(5), pages 87-91, Supplemen.
    9. David Cutler, 1994. "Market Failure in Small Group Health Insurance," NBER Working Papers 4879, National Bureau of Economic Research, Inc.
    10. James M. Poterba & Lawrence H. Summers, 1985. "Public Policy Implications of Declining Old-Age Mortality," Working papers 378, Massachusetts Institute of Technology (MIT), Department of Economics.
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    Cited by:

    1. Robert F. Graboyes, 2000. "Getting better, feeling worse : cure rates, health insurance, and welfare," Working Paper 00-05, Federal Reserve Bank of Richmond.
    2. Jin Feng & Zheng Song, 2009. "Health care system in rural China: A quantitative approach based on heterogeneous individuals," Frontiers of Economics in China, Springer;Higher Education Press, vol. 4(2), pages 153-172, June.
    3. Stéphane Jacobzone, 1997. "Systèmes mixtes d'assurance maladie, équité, gestion du risque et maîtrise des coûts," Économie et Prévision, Programme National Persée, vol. 129(3), pages 189-205.
    4. Frits Bos & Rudy Douven & Esther Mot, 2004. "Four scenarios for the future of the public sector and healthcare," CPB Document 72, CPB Netherlands Bureau for Economic Policy Analysis.
    5. Udo Schneider, 2002. "Beidseitige Informationsasymmetrien in der Arzt-Patient-Beziehung: Implikationen für die GKV," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 71(4), pages 447-458.
    6. Deborah Wilson, 2005. "Acquisition and disclosure of genetic information under alternative policy regimes," The Centre for Market and Public Organisation 05/118, Department of Economics, University of Bristol, UK.
    7. Robert F. Graboyes, 2000. "Medicine worse than the malady : cure rates, population shifts, and health insurance," Working Paper 00-06, Federal Reserve Bank of Richmond.
    8. Walter M. Cadette, 1999. "Rethinking Health Care Policy: The Case for Retargeting Tax Subsidies," Macroeconomics 9902011, EconWPA.

    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health


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