The Role of Government

Abstract

Chapter 7 examines the role of group purchasing as a form of health insurance policy. This chapter describes the role of government in terms of health insurance policy. The chapter begins with a description of the goal of government, which is to move the health insurance system to providing optimal health insurance arrangements. A beneficent “social planner” could, in theory, implement a set of prices that would maximize the utility of health insurance to society. However, many of the implied policy solutions may be infeasible. As a result, health insurance policy is concerned with “second best” policies that optimize health insurance subject to constraints facing policymakers and markets. These policies can improve health insurance by addressing market failures in the health insurance market. Policymakers have a number of policy and regulatory tools that they can use to improve health insurance. Ultimately, any health insurance policy implemented by the government relies on the benefits of scale and scope if it is to make society better off. The trade-off for any governmental intervention are the costs arising from crowd out and deadweight loss. That trade-off leads to a consideration of universal group coverage and, in particular, full group coverage provided by the government. These are two types of single payer approaches to health insurance, which is an approach with both benefits and costs. As a result, policymakers may want to consider the wider menu of health insurance policy options that fall short of a single payer approach. Finally, this chapter assesses the meaning of public health insurance. How does the federal government operate as a group purchaser? How can group insurance for large populations account for diversity and heterogeneity in preferences and the variation in prices paid by different individuals within a public system? The answers to these questions imply an ongoing role for the private sector in any governmental approach to health insurance. That conclusion also provides a segue to Chap. 9, which considers the broader range of public policy choices with respect to health insurance in the United States.