The health care debate

American economists, following the path of European ones for once, are being trapped in the public insurance of health care dilemma: if the state provides universal insurance coverage, then health care spending is going to increase, and since that insurance (being public in that scheme) has to be tax financed, the overall amount of taxes (mostly on labor) is going to increase too, slowing down economic growth.

As a consequence future governments will try – just like their European counterpart -- to ration health care spending because higher labor taxes are bad for growth and not because more health care is bad for people. But this is not an optimum for an aging and richer population. And the trend will prove difficult to resist, since administrative rationing is inefficient, as European experience abundantly demonstrates.

The solution: health care insurance should be made compulsory but privately purchased by households. Low income households, and only they, should then be helped and subsidized by public funded vouchers. This limited financing would reduce the overall amount of taxes levied on labor (compared to the current scheme) and their growth-reducing impact.

The bottom line: health care spending could then increase as much as people wish, economic growth would not be slowed by permanently increasing labor taxes, and low income households would benefit from the same health care coverage than high income ones.