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beyond the point where its marginal value equals its marginal social cost.
The result is waste of the resources used to supply medical care that would
create more value in alternative uses. As this underpricing drives up the
social cost of medical care, the private, but indirect, cost of medical care

soon escalates as well through higher insurance premiums. The
information necessary to reduce the waste of medical resources is further
suppressed by the public financing of medical care through Medicare and

Medicaid, which increases the amount people pay for medical care
indirectly (in this case through taxes) instead of directly. This mispricing
also increases the amount of health care demanded and drives up other
indirect costs, with yet higher insurance payments, higher taxes, additional

paperwork, and other nonprice rationing of health care.
Instead of these problems being seen as an argument for restoring
the information provided through market prices, they motivate a public

demand for government to further suppress market information with
more controls over our medical decisions in the attempt to disguise the
rising real cost of medical care.

A common argument for maintaining and, indeed, expanding our
current system of third-party payment for financing medical care is that
it is a justifiable form of insurance needed to guarantee that this care is

adequately available to all. When the problems discussed above are
acknowledged, the response is that such problems are the necessary
consequence of the moral hazard associated with insurance. But real
insurance covers the cost (or much of the cost) of highly unlikely

catastrophic events like your house burning down, or a serious illness
requiring expensive medical attention. The moral hazard associated with
this insurance has to be considered, but is not nearly as great as that

associated with what now passes for medical insurance. Most medical
insurance today, because of its lowdeductibility, is primarily prepayment
for routine medical services, analogous to hunger insurance. Once the
premiums or taxes are paid, the dominant response (consider the benefit

and largely ignore the cost) reflects a serious moral hazard, one that is
far greater than would exist if government policies did not censor and
distort information on the cost of health care and health insurance.

Politicians and the press routinely discuss the importance of
funding scientific research to discover better ways to treat diseases and
improve health care. Few people would deny the importance of the

information such research can provide. Yet few people seem to
recognize that improving the communication of the information of time