Daniel J. Mitchell

I’ve often explained that “third-party payer” is a major problem in our healthcare sector.

This occurs when consumers can buy healthcare with other people’s money. For instance, nearly half of all healthcare spending in America is directly financed by government. And a big chunk of supposedly private healthcare spending is actually the result of government policies that encourage and subsidize over-insurance (in which case, people may be buying healthcare with their own money, at least indirectly, but in a system akin to a pre-paid all-you-can-eat buffet).

Anyhow, one of the big downsides of this system is that third-party payer undermines market discipline and leads to higher prices and massive inefficiency in the health sector.

This then leads to a perverse outcome as politicians point to the higher prices and inefficiency and say this is evidence of market failure!! In a stereotypical example of “Mitchell’s Law,” they then propose more government to ostensibly deal with problems created by government (and people wonder why I have lots of gray hair).

We have the same problem in higher education, except it may be even worse if you look at these charts. Simply stated, government loans and grants have enabled colleges, schools, and universities to dramatically boost tuition and engage in massive bureaucratic featherbedding.


Daniel J. Mitchell

Daniel J. Mitchell is a top expert on tax reform and supply-side tax policy at the Cato Institute.