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Reducing Taxes and Simplifying the System: Privatizing Healthcare


The American healthcare system is becoming more complicated and inefficient for consumers, companies, employees, and taxpayers. In contrast, powerful organizations that profit from the current system are firmly opposed to change. We also have a healthcare system burdened with laws that increase prices, limit competition, and in some cases, do nothing to promote the health of the population (Minton, 2013). There is a direct correlation between increased health insurance rates due to these inadequacies, requirements, and restrictions. Prescription drug costs have surged, notably in the particular market (the areas most impacted by the Affordable Healthcare Act, or ACA), while out-of-pocket expenses have doubled over the same period.

Even though the Affordable Care Act was designed to reduce healthcare costs, rates in the marketplace soared once the government implemented the ACA’s insurance standards in 2013. As a result, rates for all packages increased: Between 2014 and 2018, premiums for the standard plan—the 2nd-lowest price silver plan—in states with federally operated healthcare exchanges rose by 88%. ( (ASPE 2017 Research Brief) It’s also becoming more expensive for businesses to provide employee health insurance. The average cost of family coverage has risen by 20% since 2013 and 55% since 2008. Government expenditure is growing as much as private spending. In the United States, government healthcare spending currently accounts for about half of all healthcare expenses, putting an increased burden on the country’s taxpayers. This rise in government expenditure is due to the baby boomer generation’s transition from private insurance to Medicare.

Accordingly, it’s not unexpected that there are increasing worries about whether this investment delivers value for money. Furthermore, the federal government’s control of the health system has grown substantially. Public institutions are generally reluctant to alter and adjust to healthcare advances and new payment structures. Due to the government’s heavy involvement with the healthcare industry, productivity is expected. For instance, the Department of the Actuarial science at Medicaid and Medicare Services (CMS) institutions discovered multifactor performance. The production from combined units of labor and capital health facilities had a 0.1% to 0.6% 10 years moving average performance rate of increase between 1990 and 2013, compared to 1% in personal non – agricultural enterprises. There is a waste of funds and pervasive inefficiencies in the health service, especially in public programs, based on slower-than-average productivity growth (McGinnis et al., 2013).

Government laws put constraints on private enterprises that rely on government money, even though they serve individually paying customers because the state’s portion of healthcare expenditure is so high. Because of the government’s influence, Americans are getting less value on their health budgets. The U.S. spends a huge portion of its national revenue on healthcare, yet most of this money does not result in longer or healthier lives for its residents. Increased competition is among the significant techniques accessible to improve citizens’ worth from their medical expenses. Competition in the healthcare market should lead to reduced pricing and better services. In contrast to the conventional economic perspective, this analysis found several instances when government regulation and laws impede healthcare markets from operating properly (Minton, 2013).

This research aims to investigate the extent to which rivalry for medical services prevails and the influence government intervention performs in influencing competitiveness for medical services. Several government regulations impede competitiveness in healthcare systems, limit production returns among providers, enhance merger and market structure and hinder the adoption of more effective or creative methods of providing and paying for treatment. There are two reasons why an effective running health industry is essential. First and foremost, the high standard of living that Americans enjoy is largely due to the economic and non-economic benefits that come with good health and well-being. Secondly, Americans devote large sums of money to healthcare squander assets that one might otherwise use for other national and personal concerns.

Americans have a right to demand better value for their money on healthcare. Health care costs within the U.S. account for approximately one-fifth of the total nation’s GDP; however, much of this money is wasted. For instance, the 2018 Fiscal Reports to the Head of state, published by the Bureau of Economic Analysis, analyzed various researches that revealed a weak correlation between government coverage increases and health improvement. As this paper shows, our healthcare system may benefit greatly from increasing consumer choice and competition.

Free Market in Healthcare

Economics experts agree that free-market create effective manufacturing and supply of commodities and solutions. When customers have options, incentives, and the data they need to get the best deal, businesses have an incentive to innovate to enhance quality and cut prices. Competitive economic pressures and the reward for innovating elevate value and reduce prices, along with reliability-adjusted value, for services and goods over the period (features noted in many effectively working sectors of the economy and which are nearly nonexistent inside the tightly controlled health industry) (Perry, 2018). However, when government rules and laws stifle competition, manufacturers could use existing economic power to increase costs, create low-quality services and products, or grow satisfying in innovation. The motivation to drop costs enhances reliability, and innovation decreases without competitive pressure.

As the government’s part in healthcare expenditure has grown, the health sector has become more subject to laws and restrictions that restrict market dynamics. The relevant statistics clearly show the significance of market rivalry. Hospitals that don’t have any local competition tend to overcharge, which may increase hundreds of funds to patients’ medical expenses. Healthcare expenditures influence insurance rates to the extent that these costs are often transferred to clients or taxpayers. As a result of a lack of market competition, insurance premiums rise. According to researchers, bringing in one insurance firm to the healthcare market in 2014 cut rates by 4.5% (Dafny, Ody & Gruber, 2015). On average, premiums for exchange plans in locations with just one insurer are 50% higher than in places with more than two. Similarly, an absence of competition in the employment industry for healthcare insurance results in comparable consequences. As a result of a rise in the regional clustering of healthcare insurance companies between 1998 and 2006, according to an article in the Economic Review of American, premium rates in typical sectors were around 7% points higher by 2007. (Dafny, Duggan & Ramanarayanan, 2012).

Government Failure

Many people say that healthcare is “special.” However, the term “unique” is commonly employed to indicate the free-enterprise ideas that control different key areas of the fiscal system do not apply to the health industry. There are various reasons offered for the distinctiveness of medical sectors, but among the more regular ones are the challenges associated with seeking solutions. The competence disparity of health care providers and patients (skewed data), the scale of economy inherent in the industry, and the prevailing dependence on third-party transacts. Consideration is given to some of the most often mentioned reasons for the uniqueness of healthcare below.

Additionally, a few of these elements, such as third-party payment, are encouraged by government rules. Free-market concepts may be used in the healthcare industry despite some of these traits, although this is not the case. Among other things, government actions encourage a host of issues that impede the free market from functioning. It has also fostered excessive third-party payment, established hurdles to entry that are ineffective and encouraged opaque pricing methods, and has imposed constraints on the reimbursement procedures of government programs. Consequently, consumers face higher costs and lesser quality due to fewer options, reduced competition, and poorly functioning marketplaces.

Unaffiliated Third-Party Solution

Why do health systems not work like another financial environment, with transparent pricing, distinct quality criteria, shopping, and decreasing actual, quality-altered pricing over the period? Why is the health market not like most regional economies? The primary reason for this is that government regulations have resulted in an over-dependence on third-party transaction channels and many obstacles to the entrance. Third-party transaction techniques shield the end client against the personal fund transfer for health products and solutions. Clients use a third-party mediator to pay for the services for healthcare instead of doing it themselves. Some third-party billing in the health system is acceptable and required because of expensive, reduced probability, and difficult-to-forecast medical crises that would alternatively cause a huge financial loss to an individual or family. As an effective tool for mitigating the effects of unexpected and expensive catastrophes, insurance that includes ordinary, foreseeable solutions have substantial disadvantages.

Foremost, the implementation of a system of insurance is often bureaucratically complicated, and as a result, administrative expenses might be quite expensive. As a result, customers are incentivized to get the most value out of their insurance policies (because the premiums are, in fact, a set price), which produces an inclusion-incited market for cheap items or services, and increases administrative expenses as insurers confirm claims. Corporations in other markets offer, and customers in other marketplaces choose plans that protect against unlikely but expensive disasters. Customers are motivated to contribute to the promotion they obtain from regular, reliable, or transactive services that third parties do not include in alternative insurance covers. Vehicle insurance is a nice illustration. Automobile insurance normally covers medical costs incurred due to an accident but does not include petrol or basic maintenance. Consider what would happen if your car insurance covered the cost of petrol and regular maintenance. As a result, customers would shop for gasless carefully and use more upkeep because the insurance scheme would pay the incremental cost of premium fuel.

Secondly, in response to increased use and related premium hikes, vehicle insurance firms may build favored systems of gas and upkeep providers to better encourage customer behavior and manage costs. Complex bureaucratic management systems may arise in the future to deal with resource allocation when massive national networks take over the market. When insurance covers more and more of an individual’s normal costs, customers have fewer incentives to seek value. In the past, the federal government has supported purchasing insurance plans that cover a wide range of benefits (Fronstin, 2020). Employers were encouraged to provide extensive insurance coverage to compete for employees throughout the 1940s to 1950s due to the absence of company-funded medical cover payments from payroll taxes. Specifically, this encouraged firms to provide their workers with medical insurance instead of pay raise or alternative incentives that do not have large tax exclusion.

Due to non-fixed tax incentives for organizations-funded medical cover, medical insurance within the U.S. includes normal, foreseeable, and shoppable treatments to reduce chances of occurrences.

In 1965, Medicare and Medicaid were established, which resulted in further government subsidies for comprehensive insurance coverage (Schaefer, 2021). Individuals must now obtain comprehensive health insurance under the ACA or face a tax penalty. (As of 2019, this fine has been decreased to zero according to the Tax Reform law of 2017.) Companies with over fifty full-time staff that fail to provide exhaustive insurance face a punishment fee if just one of the staff obtains a premiums tax incentive for a plan of exchange. Medicaid growth, rates, tax incentives, and expense distribution cuts funding for insurance exchanges were also introduced as a segment of the manageable healthcare Bill.

State and federal rules controlling health insurance plans, such as the ACA Bill, mandate the inclusion of particular medical benefits, sometimes with little or no co-payment. This dilemma is best shown by the Medicaid program, which has little or no co-payments or deductibles (Schaefer, 2021). The lack of an incentive for customers to shop for the best deal eliminates one mechanism for limiting supplier costs. As a result of these policy decisions, the healthcare industry has become inflationary. Increasing healthcare expenses should pressure insurers to proactively control these expenses on behalf of consumers. In competing insurance exchanges, insurers are under pressure to cut healthcare costs and rates. But others argue that insurers gain from higher provider prices. A recent paper suggested that insurers may not have sufficient incentives to reduce provider costs since higher provider pricing translates into larger insurer profitability (Allen, 2018).

This may be an issue in marketplaces where there is little or no competition among payers. It doesn’t matter what the motivations of insurance companies may be; healthcare prices continue to rise faster than salaries and overall GDP. Third-party payment also separates suppliers and customers and passes administrations with the job of distributing assets. Administrations are particularly vulnerable to the constraints of unique interest organizations, which push legislators to mandate coverage for the items or services they manufacture or supply. Special interests profit from mandates, while third-party financing for health care services increases the cost of premiums and taxes for everyone else.

Consequently, higher premiums may encourage some consumers to seek out more services and treatment to get the most benefit for their money. This kind of conduct raises utilization and leads to a rise in low-value expenditure. Excessive payment from third parties also causes providers to serve the interests of payers—government bureaucracy and insurance companies—instead of customers. As a result, in most other marketplaces, customers are more likely to evaluate the value of a product than other options. The price and quality wars are stoked by customers who browse around for the best deals. Third-party payment for normal, predictable, and shoppable expenditures diminishes customers’ motivation to acquire maximum value and contributes to hidden and overcomplicated pricing and regulatory complications. Consequently, citizens are less able and not motivated to look for medical service providers, evaluate pricing and reliability, and choose the effective ones. Because of this, suppliers have less of a motive to develop and improve their efficiency.


Allen, M. (2018). Why your health insurer doesn’t care about your big bills.

ASPE Research Brief. (2017). Health plan choice and premiums in the 2018 Federal Health Insurance Exchange.

Dafny, L., Gruber, J., & Ody, C. (2015). More insurers lower premiums: Evidence from initial pricing in the health insurance marketplaces. American Journal of Health Economics1(1), 53-81.

Dafny, L., Duggan, M., & Ramanarayanan, S. (2012). Paying a premium on your premium? Consolidation in the U.S. health insurance industry. American Economic Review102(2), 1161-85.

Fronstin, P. (2020). The Impact of Single-Payer Health Care and Other Public Policy Proposals on Employment-Based Health Benefits. Benefits Quarterly36(2), 23-6.

McGinnis, J. M., et al. (2013). Best care at lower cost: the path to continuously learning health care in America.

Minton, M. (2013, May 7). The GOP Has a Blurry View of Free Markets In Medicine – Competitive Enterprise Institute. Competitive Enterprise Institute;

Perry, M. J. (2018). Chart of the day (century?): price changes 1997 to 2017. American Enterprise Institute.

Schaefer, N. O. (2021, 0 0). Medicaid at 55: Understanding the Design, Trends, and Reforms Needed to Improve the Health Care Safety Net | The Heritage Foundation. The Heritage Foundation;


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