It’s time for a ‘new Medicare’

Not only will competition lead to higher quality health care at lower cost, but it will also remove billions of dollars of pointless tax-welfare “churn” and middle class welfare.

Under the current system, middle- and high-income earners pay extra tax just so that they can receive this money back in subsidised health. This tax-welfare churn provides no benefit. It would be far more efficient to allow these people to keep their own money and purchase their own health care.

Tax-welfare churn has many costs - administrative, economic, social, intergenerational and political. It involves taking money from one person and giving it back to the exact same person. It is not redistribution. Rough estimates of our current welfare systems (including transfers, health and schooling) suggest that of the $260 billion spent every year, about half is redistribution and half is churn.

Some of that churn is unavoidable. But the churn linked to income tax is avoidable and adds up to about $80 billion every year. That is $80 billion (about 7 per cent of GDP) every year pointlessly going from taxpayer to bureaucrat and back to the same taxpayer. And one of the biggest reasons for this wasteful churn is the current health system.

Allowing open competition in health, linked with a $3,000 per person tax cut (or transfer payment) would address churn, decrease administration costs, result in higher quality and more efficient health care, reduce economic distortions, guarantee health care for everybody, and allow greater choice and diversity. Reform of health policy is difficult, but the benefits are worth it.