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Jekyll, Hyde, Mitt...and Milton


If you liked “Dr. Jekyll and Mr. Hyde,” take a look at Mitt Romney on health care. (NR posted a symposium on Romney’s health care proposals just last week.)

First there’s the health insurance scheme that Romney imposed on Massachusetts—RomneyCare, as it is colloquially, if not affectionately, known. The scheme involves lots of regulations and bureacrats. And it already appears to be demonstrating the usual signs of government intervention: rising costs and completely unexpected consequences. As Sally Pipes puts it, “Stay tuned…a smash-up is on the way.”

Then there are the health care measures that Romney has proposed as a candidate for the White House. They strike me as the best proposals any candidate has yet advanced. Based on the work of Romney advisers Glenn Hubbard, dean of the Columbia Business School, and John Cogan, a fellow at the Hoover Institution (and—full disclosure—a friend of mine), the proposals center on the simple notion that people who buy health insurance on their own ought to get the same tax break as people who buy health insurance through their employers.

Romney’s proposals have caught flack from some on the right, largely because the proposals would permit consumers to deduct all their out-of-pocket health care expenses, a change in the tax scheme that would create incentives to overspend. But this is a charge that has already been anticipated—and by no less a figure than Milton Friedman. Writing in 2001 about medical savings accounts, Friedman laid out arguments that apply just as neatly to Romney’s proposals.

“By extending tax exemption to all medical expenses whether paid by the employer or not,” Friedman argues, “it [the medical savings account] eliminates the bias in favor of employer-provided medical care. That…is a move in the right direction.”

“However,” Friedman continues, “the extension of tax exemption increases the bias in favor of medical care compared to other household expenditures. This effect would tend to increase the implicit government subsidy for medical care, which would be a step in the wrong direction.”

A step in the right direction, a step in the wrong direction. How does Friedman resolve this?

“But, on balance, given how large a fraction of current medical expenditures are [already] exempt,” Friedman concludes, “it seems likely that the net effect…would be very much in the right direction.”

Even as Milton Friedman would have found himself appalled by RomneyCare, in other words, he’d have pronounced Romney’s current proposals “very much in the right direction.”