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How Government Policy Inflates Health Care Costs: The Curse of Cross-Subsidies


Published September 29, 2020

Cross-subsidies exist when the government allows companies to overcharge one set of consumers in order to subsidize others. Cross-subsidies require the government to enforce monopolies to stifle new competition that would otherwise offer lower prices. Innovation suffers and prices rise as a result. A more effective way to lower health care prices is to tax and spend on budget using market prices.

Discussion Questions:

  1. How would you explain cross-subsidies to your friends?
  2. What are examples of cross-subsidies in other industries?

Additional Resources:

  • Read “The Curse of the Cross-Subsidies,” by John H. Cochrane. Available here.
  • Read “The Tax-and-Spend Health-Care Solution,” by John Cochrane. Available here.
  • Read “Cross-Subsidies,” by John H. Cochrane. Available here.