Americans pay for their health care mostly indirectly, through lost wages and higher taxes. They have no incentive to control costs, which therefore balloon. When the government is picking up the tab, as in the drug-benefit debate, economic reality is left even further behind.
Many economists would prefer that the government limit its involvement in health care coverage to catastophic coverage. The government could buy everyone a health insurance policy that kicks in if expenses are over, say, $10,000 a year. Nothing would stop individuals from buying additional coverage, but such additional coverage would not be subsidized by direct government payments or indirectly through the tax code, as it is today.
Discussion Question. In the absence of taxes and subsidies, do you think that people would purchase health insurance that covers every dollar of medical expenses?