Although intended to be a pejorative term, the term “death panel” accurately reflects decisions that have to be made about whom to save when resources are scarce. We simply do not have the resources to provide as much health care as people might desire for prolonging their lives or the lives of their loved ones. If government pays for health care, as it does for Medicare and Medicaid beneficiaries, limited funds necessitate that sometimes people will be denied access to care. If the decision of who does and who does not get care is not made explicitly by an appointed committee, it will be made by default as scarcity necessitates that some must wait in line for health care.

It is not hard to find tragic stories of Medicaid or Medicare beneficiaries who died because they could not get the care they needed. In some cases, this is due to the fact that reimbursement rates are so low that those with urgent health problems may have to wait too long to get an appointment. In others, an explicit decision may have been made to deny coverage to someone. When government or an insurance company pays the bill, scarcity necessitates that people cannot get all the health care they might want or need. It might be better for an appointed board to decide the rules that determine when care gets paid for and when it does not, than for people to be told they are entitled to whatever care they need, but then end up waiting for treatment until it no longer does them any good.

In our market economy, if a board such as the IPAB decides that a certain treatment will not be covered by Medicare, that does not mean that a patient who desperately needs the treatment cannot get it. If something is not covered by Medicare, those who are willing and able to do so may pay out of their own pockets so they or their loved ones can get the health care they need.

Republicans, or anyone else opposed to the idea of death panels, should be consistent. They should either support elimination of health care entitlements, particularly Medicare and Medicaid, or support changing them into defined contribution plans, where government contributes money toward health insurance premiums and lets insurance companies decide what is covered and what is not. This way, those covered by Medicare and Medicaid would at least be able to have some choice about who makes those decisions and how they are made. As long as they are counting on a third party to pay for their health care, Americans should not expect to be able to get as much care as they want or need regardless of cost.

If government is going to continue to pay for health care entitlements, the question is not whether some people will be denied health care; it is about who makes the decision and how the decision is made. Rather than pretending that it is possible for the government to spend whatever it takes to provide unlimited health care for all, the pertinent question is what are the rules and procedures for deciding and who are the ones assigned to interpret the rules about who gets care and who does not.  Those who supported the politicians who gave us Medicare, Medicaid, and health care reform should not be surprised that those in charge of those programs want the power to make those life and death decisions and might make them in a way that goes against the principles we believe in.

Everyone is talking about the “fiscal cliff”—the likely impact of the expiration of the Bush tax cuts and the planned cuts in government spending that are part of Budget Control Act of 2011. Much discussion about the fiscal cliff, and its likely consequences, however, is misleading. The media have emphasized how a tax increase or cut in government spending will reduce overall spending in the economy so that firms have to cut back production and lay workers off. We should be much more concerned about how the fiscal cliff affects investment and entrepreneurship than how it affects aggregate spending. This is why allowing tax rates to rise, especially on the rich, will do more harm than good.

Republicans and Democrats claim that they want to reduce the government deficit, which (some argue) would require some combination of tax increases and government spending cuts. Many are convinced that both the government and also American families need to spend more to bring the rate of unemployment down. If taxes are increased, households and businesses will reduce their spending. This reduction in private spending, especially when combined with a reduction in government spending, may cause a recession.

Although increasing taxes and cutting government spending may have negative short-run effects, a more fundamental question is how the U.S. economy can return to a faster long-run rate of growth that will make it possible for the millions who are now unemployed to return to work. Contrary to popular belief, the primary reason for the poor performance of the U.S. economy is not that Americans are spending too little. It is rather that businesses are not investing enough in capital equipment and are not willing to hire people because of uncertainty about the future of the economy. Reducing government spending and borrowing, particularly if the spending cuts are permanent and not temporary, may actually give people greater confidence to invest and start businesses.

The biggest problem with raising taxes is not that people will spend less. Higher tax rates influence the incentive to work and invest. If entrepreneurs and investors expect the government to take 40 cents or more out of every additional dollar they earn, many are going to be less inclined to take the extra risks associated with expanding their businesses and hiring more workers. If, however, the government were to increase its tax revenue by eliminating loopholes in the tax code, the incentive to work and invest would be affected much less than by an increase in tax rates. Certain provisions in the tax code, like the mortgage interest deduction, reward people for doing things that do not help and may actually hinder the long-run growth of the economy. Incentives are the key to a healthy economy, so tax increases are most harmful if they reduce incentives to work and invest, which happens when government requires workers and investors to pay a higher percentage of each dollar earned.

Why can’t the two sides compromise for the sake of being fiscally responsible—combining moderate tax-rate increases with spending cuts? The debt of the federal government is so large that the token spending cuts being considered by politicians of both parties will do little to prevent government bankruptcy. If the federal government used accounting standards that businesses use, it would record government debt as much higher than the official figure of $16-plus trillion. The reported federal government debt excludes trillions of dollars of unfunded Medicare and Social Security benefits that workers expect to receive when they retire in exchange for the taxes they paid during their working years. If a compromise could be reached that involved cuts in promised Social Security and Medicare benefits large enough to make those programs sustainable, it might be worth considering.

A tradeoff exists between short-term stimulus of the economy and long-term growth. It may be that cutting government spending would slow the growth of the economy in the short run, but that is not a foregone conclusion. The resulting reduction in government borrowing would mean that more of the money people save would be available to finance private investment. Increased investment would lead to more and higher-paying jobs.

Continuing to postpone steps to drastically reduce government spending, though it may modestly help the economy in the short run, is not the answer. Raising tax rates, however, will do little to address the long-run debt problem of the U.S. government and may just make it easier to delay needed spending reductions. Limiting the share of income taken in taxes and cutting government spending will encourage firms to invest in capital and hire more workers, especially if combined with steps to roll back some of the recent increases in regulation of health care and the financial system, which have contributed so much to uncertainty about the future.

A year ago, opponents attacked Rep. Paul Ryan (R-Wis.), claiming that his plan to reform Medicare would kill grandma by taking away her benefits. Mitt Romney, who, of course, has chosen Ryan as his running mate, is proposing similar changes to Medicare. Does Ryan want to gut Medicare? To the contrary, Ryan’s intention is to save Medicare. The problem, however, is that Ryan’s proposal, although a step in the right direction, does not go far enough. More drastic measures need to be taken to save Medicare so that it provides a reasonable level of benefits for future generations of retirees.

Medicare will soon be the biggest contributor to an unsustainable level of federal government debt. Even progressive economists, such as Alan Blinder, who generally support an increased role for government in the economy, realize that Medicare spending is on an unsustainable path.

Congressman Ryan has raised hard questions about the future of Medicare. Medicare spending was 3.2 percent of gross domestic product in 2008 and the Congressional Budget Office projects it will rise to 9.5 percent by 2050. According to Michael Cannon and Chris Edwards of the Cato Institute, if Congress does not reform Medicare and other entitlement programs and continues to spend the same share on other federal government programs, federal spending will double from 21 percent of GDP in 2008 to 42 percent in 2050.

Although part of the reason for rising Medicare spending is the growing number of retirees, spending per person has been rising much faster than inflation. Because Medicare recipients are spending other peoples’ money, they have little incentive to limit their spending. Waste and fraud are serious problems as unscrupulous individuals try to get a share of the enormous amount of money being spent. Much Medicare spending is for treatments that are not cost effective, yielding too small a reduction in mortality or suffering to justify the amount being spent.

The Obama administration’s plan and Romney’s proposal, which is very similar to the proposal introduced by Congressman Ryan and Senator Ron Wyden (D-Ore.) in 2011, both recognize the need for holding down Medicare costs, but each takes a different approach. President Obama’s plan maintains traditional Medicare while seeking to use the power of the federal government to control prices and implement a variety of cost-control provisions aided by various positive and negative inducements. The Republican plan shifts costs from the government to beneficiaries, replacing traditional Medicare with vouchers whose value will grow more slowly than medical costs have been growing.

The president’s plan would take advantage of cost-effectiveness research and proposes ending coverage for expensive procedures that offer few health improvements. The problem is that this one-size-fits-all approach does not adequately account for the diverse needs and situations of patients. Instead of the federal government deciding what to cover and not cover, a plan involving vouchers and private insurance would allow individuals the freedom to choose the kind of coverage they want.

In the plan he announced in 2011, Paul Ryan proposed changes to Medicare that would not take effect for 10 years and would reduce benefits only for those who are now younger than 55. By putting off real cuts until 2023, the Ryan plan would still add trillions to the national debt over 10 years. For the sake of future retirees, more radical changes need to be made and the sooner the better.

Although Ryan’s proposal would not do enough to make Medicare sustainable, his candidacy may make Medicare and fiscal responsibility (generally) central issues in the 2012 presidential campaign, which is a good thing. The time has come for responsible debate about Medicare, Medicaid, and other entitlement programs. We cannot continue to ignore the looming fiscal nightmare any longer.

Recent monthly employment reports have confirmed that this is the slowest U.S. recovery from a recession since the Great Depression. Four years after the recession began, unemployment is still above 8 percent, more than three percentage points higher than it was before the recession began. Critics of President Obama argue that the sluggish recovery is due to economic policies he pursued, such as bailouts, extended unemployment insurance, healthcare reform and reform of financial regulation, which was part of the Dodd-Frank Act. Regardless of policy decisions made since 2008, considerable evidence supports the assertion that the slow recovery can be blamed at least partly on the fact that the recession was caused by a financial crisis. Nevertheless, with better economic policies, the recovery would have been faster and more people would be employed today.

Recoveries are notoriously slow after major financial crises, as documented in the book “This Time is Different: Eight Centuries of Financial Folly,” by Reinhart and Rogoff. The financial crisis resulted from expansionary monetary policy and the resulting low interest rates, which led to excessive borrowing for investment in housing. When housing prices collapsed, millions employed in housing construction and related industries lost their jobs. Because of failures of major financial institutions due to excessive risk taking, lenders became much more cautious, making it difficult for entrepreneurs to invest in new enterprises that would create jobs to replace those that were lost.

In a free market economy, the recession itself causes price changes that create incentives for job creation. Unemployment leads to falling wages, and firms’ reluctance to borrow leads to falling interest rates. These changes provide an incentive for entrepreneurs to hire additional workers and increase investment in capital goods. The problem now is that the price and interest rate incentives that would motivate firms to invest and create new jobs have been offset by uncertainty about the future that discourages investment and job creation. Much of this uncertainty is due to federal government policy.

One source of uncertainty is rapidly increasing government debt and concern about how the debt will be financed. Both parties share blame for rapidly rising government spending and debt, since spending also grew faster than the economy under President Bush.

To slow the growth of government debt, the Obama administration and Democrats in Congress want to raise tax rates when the Bush tax cuts expire in January 2013. A tax increase would reduce consumer spending, but the biggest problem with a tax increase is that it reduces the incentive to work, invest and take risks, particularly among entrepreneurs who start and manage businesses.

Without a large tax increase, rising debt due to increased government spending means that government is taking a growing share of a limited pool of savings, meaning less will be available for private investment. Although low interest rates make investment projects affordable now, rising government debt may lead to higher interest rates in the future. This discourages investment in higher order capital goods, whose profitability may depend on consumers’ or producers’ willingness to borrow in the future.

Some economists, such as Paul Krugman, argue that the problem is not too much, but too little economic stimulus spending. When government borrows more to increase spending, however, there will be an offsetting reduction in private borrowing for investment. Private investment enables firms to produce more goods and services that people value, while government investment goes to projects that often provide little of what consumer’s value, as illustrated by government subsidies to failed solar energy company, Solyndra.

As economist Gary Becker notes in his blog, expansion of means-tested benefit programs also contributed to the slow recovery by making people less willing to work full-time. Extending unemployment insurance to 99 weeks reduces the incentive to search diligently for a job, enabling unemployed workers to be choosy. Changes that have made the food stamp program more generous, along with policies to reduce mortgage debt for low income people, also make it easier to wait for a better job offer or work part-time rather than full-time. Such policies are one reason why high unemployment coexists with more than three million job openings per month, many of which remain unfilled.

The financial crisis is to blame for the depth of the recent recession and partly to blame for the slow economic recovery. If market forces were allowed to work, however, the economy would recover more quickly. If they did not have extended unemployment compensation, some unemployed workers would find and accept new jobs. If uncertainty about government policy and its impacts weren’t such a big concern, firms would be willing to invest in expanding production in response to lower interest rates. A return to a system with fewer entitlements, less government spending, stable rules and a commitment to maintain low tax rates would increase confidence about the future so businesses and households would be more willing to invest and create new jobs.

Wisconsin’s reforms permit public-sector unions to bargain over wages only, not other benefits, as they did in the past. Moreover, the reforms changed public-sector unions into open shops so that membership, dues payment, and associated political contributions are voluntary. The changes in Wisconsin are a step in the right direction of restoring fiscal responsibility at the state government level.

Public-sector unions can do much more economic harm than their private sector counterparts. If the unionized employees of a private company, such as Ford, go on strike, consumers can buy cars produced by competing automakers. By contrast, unionized employees of government agencies have monopoly power. Although private alternatives exist for some government services, tax financing gives government agencies a competitive advantage even if their costs are much higher. If public-school teachers go on strike, children may get fewer days of school (unless parents can afford to pay for private schools). For this reason, taxpayers put pressure on politicians to do what it takes to end public-employee strikes, which usually means that politicians cave in to union demands.

Overall, the growing power of public-sector unions has contributed to skyrocketing costs of state and local government services. If public-sector wages rise faster than the economy grows, tax rates or public debt may have to be increased. For politicians, caving in to union demands and raising taxes may make it hard to be reelected, but public-employee strikes are even worse. Many state legislatures have resolved this dilemma by offering moderate wage increases while promising extremely generous pension benefits, deferring the costs to the future, when politicians currently in office have retired.

The future, however, is now, as many states find they have not set aside enough money to pay promised benefits to retiring workers. Thus, in spite of union opposition, politicians and voters in several states have taken steps to reduce the retirement benefits they promise government workers in the future. In San Jose and San Diego, Calif., voters overwhelmingly passed ballot initiatives that reduce pension benefits. The San Diego measure replaces pensions with defined contribution retirement plans for new hires, while the San Jose measure reduces pensions for existing workers.

In Wisconsin, unions not only lost in the recall election, but they have lost favor among many formerly unionized government workers. In the last year, membership in the American Federation of State, County, and Municipal Employees (AFSCME) in Wisconsin fell by more than half. With dues no longer taken out of their pay, workers finally have the freedom to quit their union, which many chose to do.

Unions claim that reductions in their bargaining power go hand in hand with reductions in government services. Controlling wages and benefits, however, enables governments to provide more services now and in the future. In some Wisconsin school districts where contracts have been changed in response to the reforms, substantial savings have been achieved in the cost of educating students. One district has used the money saved to hire more staff and reduce class sizes.

The declining political clout of public-sector unions, as demonstrated by the Wisconsin vote, will make it easier for governors and local officials to control budgets. This will mean fewer contracts that permit government workers to retire after 25 or 30 years of service with full salary and free healthcare paid by taxpayers. It offers hope that state governments will stop making promises that burden taxpayers with unaffordable obligations.

Many states need to follow Wisconsin’s example in reining in public-sector unions so they can gain control of their budgets. According to one estimate, state and local governments have committed to a total of $3 trillion in unfunded promises to their employees. Although union opposition is not the only impediment, it’s becoming increasingly clear to political leaders that public-sector unions are losing strength to block the cuts that will move state budgets toward sustainability.

Why should banks be treated differently than other financial institutions? Financial intermediaries, including banks, take risks so that investors can earn higher returns on their money. Banks, however, differ from other financial intermediaries, such as mutual funds and brokers, in that deposit insurance makes it possible for them to guarantee that depositors won’t lose their money, regardless of how much risk the banks take. Investors whose money is at risk will put pressure on a financial institution to limit risk, but insured depositors have little motivation to monitor the riskiness of a bank’s portfolio.

Many banks, as well as other financial institutions, invested in too many risky assets prior to September 2008, which led to the financial crisis. The financial crisis and government’s response to it are why we have a stagnant economy with persistently high unemployment four years later. If government had not stepped in to rescue bankrupt firms, the economy would have recovered more strongly from the recession. A capitalist economy works well if firms that use resources efficiently make profits and those that use resources inefficiently lose money and eventually sell their assets to others who will find a more valuable use for to them. This process of creative destruction plays a vital role in promoting economic growth and prosperity as resources are continually redirected toward those uses that most satisfy the demands of consumers.

Rather than receiving bailouts, it would have been better if American International Group (AIG), General Motors and Citigroup were left to resolve their own financial problems, which would most likely have meant bankruptcy and liquidation. Citigroup, however, is different than AIG and GM in that a substantial share of its liabilities were deposits, which were insured by the Federal Deposit Insurance Corporation (FDIC). Investors in corporations like AIG and GM are warned that they might lose some or all of their investment. Banks, by contrast, promise to return all money deposited, and depositors have confidence in this promise.

The government grants banks privileges that other businesses do not have, including deposit insurance and the power to create legal tender money. As my fellow economist, Dr. Shawn Ritenour, pointed out, MF Global got into big trouble for using money from its customers’ accounts for its own trading, yet banks do this legally all the time. If banks are going to lend out their customer’s money, they should lend it as safely as possible, so there is little question that it will be paid back. A bank, unlike MF Global, can get away with trading using its customers’ money because the FDIC, which ultimately is backed by the Federal Reserve, guarantees that customers will get their money back, even if the bank does not have enough in reserve to meet requests for withdrawal. Regardless of how much money the FDIC needs to bail out bank depositors, the Federal Reserve can create it.

Not only are depositors covered by insurance, but the federal government has a longstanding practice of not allowing large banks to fail, providing bailouts at taxpayer expense. It would be better if government did not rescue failing banks and if deposit insurance were scaled back to cover only accounts of small value. If banks did not have the implicit or explicit backing of the federal government, the need to attract depositors and creditors would limit the risks they would take. If deposit insurance only applied to small accounts, the risk to taxpayers would be much less, and large depositors would put pressure on banks to limit the riskiness of their investments.

It may be unrealistic to expect the government to scale back deposit insurance or stop bailing out large banks that are on the verge of failure. For that reason, the next best alternative is to implement the Volcker rule to prohibit proprietary trading by banks as well as maintaining more stringent controls over the size and composition of banks’ loan portfolios. This will greatly reduce the likelihood of another financial crisis like what we have just been through.

Homelessness, like any other social problem, is influenced by incentives. Unfortunately, government policy may actually be making the problem worse, particularly government-subsidized housing for the poor.

Many cities have constructed homeless shelters to provide a place for the homeless to stay out of the cold. By the late 1980s, governments created a network of shelters and soup kitchens to feed and house between 200,000 and 300,000 people per day. Between 1988 and 1996, some 275,000 permanent and transitional housing units intended for homeless persons were added. By 1996, roughly 607,000 beds were available as part of the homeless service system in the United States.

There is little evidence to suggest that government-provided shelter has in any way solved or even reduced the problem of homelessness—to the contrary, as noted, the total number of homeless has risen. While advocates for the homeless recognize this, many believe that providing other forms of government assistance will help people avoid homelessness or escape it. In their view, helping people get government-funded rental assistance, food stamps, and welfare checks is integral to preventing homelessness. Some contend that supplying the homeless and those at risk of becoming homeless with permanent housing at government expense will get homeless people off the streets so they can live stable lives.

In truth, lack of affordable housing is not the main reason that people become homeless, although it may be a contributing factor in some cities. People sometimes become homeless due to habits or addictions that lead to mismanagement of their finances, unstable family relationships, and the inability to keep a regular job. According to Martha Burt of the Urban Institute, three quarters of those who are homeless report having problems with alcohol, drug abuse, or mental illness.

Oftentimes, providing government-funded services to the homeless with no strings attached only makes it easier for some of them to continue their bad habits, whether the problem is substance abuse or an unwillingness to accept responsibility for personal behavior. This explains why homelessness did not decline but increased between the early 1980s and 2007, even though the economy was booming and unemployment and poverty were declining. Christopher Jencks argues that shelters made homelessness less painful; this meant that the homeless were “less willing to sacrifice their pride, their self-respect or their cocaine fix to avoid” homelessness. For many people, the availability of shelters seems to increase the incentive to become homeless rather than (if possible) choosing to live with a relative or friend.

Not only does the availability of temporary shelters frequently encourage homelessness, but so does federal housing policy. Many single-parent families would like to move into government-subsidized housing. Because it is in short supply, they would have to wait years for a subsidized apartment to open up. By becoming homeless, a family who was living in someone else’s home can move to the front of the line for government-subsidized housing.

Likewise, another form of government assistance is problematic: Government programs that try to provide people with skills and treatment to overcome addictions and psychoses are expensive and have low rates of success. The success rate of some private programs to help the homeless is much higher than government programs—as high as 85 percent. While government programs continue to be funded even if they are ineffective, private charitable organizations’ long-term survival depends on getting good results. Successful private programs usually continue to attract donors and volunteers, including former homeless people who themselves have been helped.

It is only natural to feel sympathy for the plight of the homeless. The solution to homelessness, however, is not more handouts from government. Homelessness can be prevented or overcome when a caring community helps those at risk to develop self-discipline and a good work ethic. This is not easy to do, but some private organizations are already doing good work in this area. Those organizations might grow and multiply and also be more effective if government programs, which often interfere with private efforts, were scaled back or eliminated.

Critics of the Patient Protection and Affordable Care Act (ACA)—intended to make healthcare access universal—claim that it would not do enough to control costs, particularly costs of government healthcare entitlements. This criticism is not entirely justified. The Affordable Care Act includes several provisions for controlling healthcare costs. Those provisions to control costs, however, will probably not be fully implemented because of a fundamental contradiction between the universal health care many Americans want and economic reality.

One of ACA’s most important steps to control costs is the inclusion of a plan to create an Independent Payment Advisory Board (IPAB), which is to consist of 15 full-time members, appointed for staggered six-year terms. The IPAB must report to Congress on how to hold Medicare spending within legislated limits. Congress is given a strict timetable to consider the board’s recommendations and vote on them or come up with alternatives that achieve comparable savings.

If all low- and moderate-income Americans are going to enjoy access to subsidized health care as envisioned by the ACA, then the government needs an organization like the IPAB to control costs. Without such an organization, or if Congress does not give it enough power, Medicare costs will continue to rise to unsustainable levels. A similar approach is needed to control Medicaid costs.

It is doubtful, however, that politicians will give the IPAB enough power to control costs like many of its proponents intended. Politicians in both parties are calling for repealing or weakening the IPAB. This is because, to be successful, the board must make tough choices to limit the most costly and least effective kinds of care. Most likely, this would require some method of rationing health care, although the IPAB is officially forbidden to make recommendations that would result in “rationing,” raise premiums, or increase the share of healthcare costs borne by patients. Few Americans would tolerate having their health care rationed.

Yet, those who support “universal health care” without also recognizing the need to use some method to ration health care are living in a dream world. In practice, universal health care requires that no one is denied access to basic health care because of an inability to pay the cost; prices will not be used to ration care. Because health care is a scarce good, some other rationing criterion must be used instead of prices. In some countries, such as the United Kingdom, health care is rationed by having people wait their turns, with the result that some illnesses become untreatable before the patient can get the necessary treatment. For example, because of delays for colon cancer treatment in Britain, 20 percent of the cases considered curable at the time of diagnosis become incurable by the time of treatment. That statistic is not lost on survivors like Herman Cain.

Many Americans want the benefits of a free-market system and the benefits of subsidized, “universal” health care at the same time. In a free market, people can consume as much health care as they are willing to pay. When government subsidizes health care, it enables people to consume more than they are willing to pay for. Hence, healthcare costs continue to rise until government can no longer afford to pay its share. Even without healthcare reform, the cost of government healthcare entitlements—including Medicare, Medicaid, and the Children’s Health Insurance Program—are rising to unsustainable levels.

If federal and state governments hope to meet their financial obligations, government spending must be brought under control. If current trends continue, the Congressional Budget Office estimates that by the middle of this century, spending for healthcare entitlements will be more than half of all spending by the federal government. Thus, controlling government spending requires reducing government spending on health care. This means that politicians must either abandon the attempt to guarantee universal access to health care, as exemplified by the ACA, or grant an organization like IPAB the powers necessary to control costs. This would most likely involve some method of rationing. Expanding access to health care without cost control will further hasten the bankruptcy of the U.S. government. If that happens, fewer people will have access to health care than was the case even before Congress passed the ACA.

If the ACA’s provisions to expand access to health care survive, don’t be surprised if the U.S. government eventually faces a sovereign debt crisis similar to what Greece is now facing.

On what basis can I claim that Americans have too much health insurance? The purpose of insurance is to protect people from risk. Private companies offer affordable insurance against losses from automobile accidents, accidental death, fires, storms, and floods, among other things. These kinds of insurance arose in response to people’s willingness to pay for a contract that will compensate them for losses due to a relatively low probability event over which the insured party has little or no control. Yet, unlike other kinds of insurance, most of what is covered by many health-insurance plans does not fit this description. This is why so many people who do not have employer-provided health insurance are either uninsured or purchase only catastrophic coverage.

The problem with many existing health-insurance plans is that they cover the cost of routine treatment for illnesses, such as colds and flu that occur frequently, or the cost of care for conditions, such as pregnancy, that are heavily dependent upon the choices of the person who is insured. Basic economics teaches that paying for routine treatment via a third-party insurance company will raise the total cost of that treatment. This happens for two reasons: First, the insurance company, as middleman between the consumer and the healthcare provider, has costs that must come out of what the consumer pays. Second, insurance that pays for routine care lowers the cost of each doctor visit to the consumer, thus increasing demand. Higher demand with a given supply means higher prices.

It does not matter whether consumers or employers pay health-insurance premiums. The premiums are part of the cost of healthcare. Eliminating routine care from being covered by health insurance would mean premiums would decrease and employers could pass the savings along to their employees as higher wages. The average consumer would be better off as a result. If it were not for the tax deductibility of health-insurance premiums, employers would not cover routine care and treatment for preventable conditions as much as they do.

This is not to deny that many Americans do not have sufficient access to affordable healthcare or that the inability of some to afford health insurance is something we should be concerned about. Although it does not make sense for insurance to cover the ordinary medical costs of child birth, treating chronic asthma, or flu symptoms, it may be a good idea to have insurance in case of complications resulting from childbirth or to cover hospitalization for pneumonia and other serious illnesses.

The best way to help those who cannot afford basic health insurance is not to require or subsidize the kind of comprehensive health-insurance plans that most employers now offer. On the contrary, healthcare costs and the cost of health insurance that would cover life-threatening illnesses and serious accidents would be considerably lower if the existing system of taxes, subsidies, and government regulations did not result in so many people being overinsured.

Such savings make healthcare reform sound like a wonderful gift until you stop to reflect: Who pays the $25 that the consumer no longer pays each time she visits the doctor?

The answer: Someone. Specifically, for those who have health insurance, the elimination of co-pays will mean higher premiums. In other words, paychecks will become smaller as insurance rates rise to cover this new government mandate.

Proponents of this new rule emphasize that if people do not have to pay for preventative care, they are less likely to require more expensive hospitalization or treatment in the future. Thus, mandating no co-pays on preventative care may reduce healthcare expenditures in the long run.

Unfortunately, this line of argument is fundamentally flawed. It assumes that the government knows or can find out how much preventative healthcare each person needs and mandate insurance companies to pay for the required number of visits. The number of doctor visits covered as preventative healthcare will be a political decision, and self-interested medical professionals will undoubtedly play an important role in that decision. Thus, we should not be surprised if the government mandates more free preventative care than would be cost effective for most patients.

We live in a world of scarcity. Money spent on healthcare cannot be spent on something else. If an insurance company provides a certain number of “free” doctor visits, each person covered by insurance will pay for the number of times the average person visits the doctor, regardless of how often the person visits the doctor.

One person’s visit to the doctor has an imperceptible impact on the per-capita cost of healthcare borne by a large insurance company. Thus, the monetary cost to each patient for a doctor visit for “preventative care” is effectively zero. The quantity of healthcare demanded will be greater at a zero price than at a $25 price. Since almost everyone will demand more healthcare at the zero price, insurance premiums will rise for everyone, and because more healthcare is being consumed, the total cost of healthcare will be greater than if everyone had to pay a $25 (or higher) co-pay.

If you are covered by a typical health insurance plan which requires you to pay part of the cost of each doctor visit, Congress has not saved you money by passing healthcare reform. Instead, it has mandated that you spend more than you might choose to spend on so-called “preventative” healthcare. If you don’t pay for it up front with co-pays, you will pay for it through higher premiums. The only way to keep premiums from rising is if the “free” care is taxpayer funded, and then someone still pays for it.

There is no free lunch, and there ain’t no free healthcare either.

Instead of “Obama Care,” which takes away our freedom, what we need is healthcare reform that gives the consumer more freedom to decide how much healthcare to purchase with his own money.