"The rapid rise in health care costs is primarily the consequence of government policies."


One of the most common criticisms of plans to convert Medicare's unlimited commitment into a voucher or premium support system is that the value of the vouchers wouldn't rise fast enough to cover the cost of health inflation. In the long run, then, seniors would be stuck with a voucher that covered less and less of their health care costs. 

What's up, doc? (Besides health spending.)

To some extent, this criticism misses the point. The federal government is barreling toward a debt crisis, and increases in health spending are the biggest cause. So the primary objective is to restructure the system so that government spending on health care does not increase at the currently projected rate. Capping spending through vouchers or premium support payments is one way to do that.

The other thing this criticism misses is the role that government subsidies have played in making health care so expensive. Cato's Jagadeesh Gokhale does a nice job of explaining the basics

Government subsidies to health care consumption, in the form of such programs as Medicare and Medicaid as well as employer tax exclusions for health insurance benefits, contribute to the rapid growth in health care costs. That is, by flooding the health care market with government money, the market ends up with many dollars chasing few worthwhile health care products, which results in rising health care prices. Moreover, the subsidies siphon away health care resources from the private-payer health care market, causing cost in that sector to increase rapidly as well.

Subsidies aren't the only government policies contributing to rising health care costs. Government restrictions on the supply of health care services also play a role. Among those supply restrictions are the ban on drug importation, a very costly and difficult new-drug testing regime, and unnecessarily restrictive licensing of health care professionals.

The rapid rise in health care costs is primarily the consequence of government policies.

A voucher system combined with a more competitive health insurance market obviously wouldn't get rid of those subsidies. But it would put limits on those subsidies, and, as a result, help contain the market distortions they cause.