Compendium

Public and Health Economics

36 min read

Public and Health Economics

Public economics studies government intervention in the economy: taxation, transfers, public goods provision, and correction of market failures. Health economics applies the same toolkit to the medical sector, which combines unusually severe information asymmetries, externalities, and equity concerns with one of the largest sectoral footprints in modern economies (the United States spent roughly USD 4.7 trillion, about 17 percent of GDP, on health in 2023). The two fields overlap heavily through Medicare, Medicaid, and the structure of health insurance.

Public Economics

Public Goods

Paul Samuelson formalized public goods in his 1954 paper “The Pure Theory of Public Expenditure.” A pure public good is non-rival (one person’s consumption does not reduce another’s) and non-excludable (one cannot prevent non-payers from consuming). National defense, basic research, lighthouses, and most environmental quality come close to this ideal.

The free-rider problem arises because rational individuals understate willingness to pay when contribution is voluntary, so private markets undersupply public goods. Lindahl pricing (Erik Lindahl, 1919) is the theoretical solution: each consumer pays a personalized price equal to her marginal willingness to pay, and all consume the same quantity. The mechanism is rarely implementable because preferences are private information.

James Buchanan’s 1965 theory of clubs extended the framework: club goods are excludable but non-rival up to a congestion point, so private provision is feasible with membership fees. Cable television, gated communities, and toll roads are clubs.

Empirically, private provision is more robust than pure theory suggests. James Andreoni’s 1990 “warm glow” model adds a utility term for the act of giving itself, which explains why charitable giving in the United States exceeds USD 500 billion per year and why public goods experiments show roughly 40 to 60 percent of efficient contribution rather than zero. The public goods game (voluntary contribution mechanism) is a workhorse of experimental economics.

Externalities

Arthur Pigou’s 1920 Economics of Welfare proposed taxing negative externalities at marginal external damage and subsidizing positive externalities (Pigouvian taxes). Ronald Coase’s 1960 “The Problem of Social Cost” argued that with well-defined property rights and zero transaction costs, parties bargain to the efficient outcome regardless of initial allocation (Coase theorem). Coase won the Nobel in 1991. See Economics/environmental-and-resource-economics for the modern carbon pricing literature.

Optimal Taxation

Frank Ramsey’s 1927 “A Contribution to the Theory of Taxation” derived the inverse elasticity rule: commodity tax rates should be inversely proportional to the price elasticity of demand, so the deadweight loss per dollar of revenue is equalized across goods. Diamond and Mirrlees in 1971 showed production efficiency should hold even when consumption is distorted, justifying uniform input taxation.

James Mirrlees’ 1971 paper “An Exploration in the Theory of Optimum Income Taxation” introduced the canonical model of nonlinear income taxation under asymmetric information about productivity. Marginal rates trade off redistribution against labor supply distortion. Mirrlees won the Nobel in 1996 with William Vickrey.

Emmanuel Saez’s 2001 “Using Elasticities to Derive Optimal Income Tax Rates” reformulated the problem in terms of empirically observable sufficient statistics (the elasticity of taxable income, the income distribution, and social marginal welfare weights). The Diamond and Saez 2011 paper “The Case for a Progressive Tax” used the framework to argue for top marginal rates around 73 percent under standard parameter assumptions.

Atkinson and Stiglitz in 1976 proved that under separable preferences and equal innate ability conditional on income, differential commodity taxation is unnecessary if optimal income taxation is available. The Chamley (1986) and Judd (1985) result that the optimal long-run capital income tax is zero was once treated as canonical but is now heavily qualified; Straub and Werning’s 2020 American Economic Review paper showed the result fails in standard cases.

Tax Incidence

Statutory incidence (who legally pays) differs from economic incidence (who bears the burden), determined by relative elasticities. The more inelastic side of the market bears more burden. Corporate income tax incidence is the most contested empirical question: traditional general equilibrium analysis attributed most burden to capital, but Suarez Serrato and Zidar 2016 in the American Economic Review found that workers bear roughly 30 to 35 percent of corporate tax incidence in the United States, with the remainder split between firm owners and landowners.

United States Tax Structure

Federal revenue (FY2024 roughly USD 4.9 trillion): individual income tax 49 percent, payroll taxes (FICA for Social Security and Medicare) 36 percent, corporate income tax 10 percent, excise and other 5 percent. The corporate rate was lowered from 35 to 21 percent by the Tax Cuts and Jobs Act of 2017. The One Big Beautiful Bill Act of 2025 (OBBBA) extended many TCJA provisions slated to sunset and added new ones.

State and local revenue is dominated by sales taxes, property taxes, and state income taxes. Sin taxes target alcohol, tobacco, cannabis (in legalizing states), and increasingly sugar-sweetened beverages (Berkeley pioneer 2014, Philadelphia 2017, Mexico nationally 2014).

The value-added tax (VAT), used in roughly 175 countries, is collected at each stage of production with credit for taxes paid on inputs. The United States is the only OECD country without a VAT. The Hall and Rabushka 1985 flat tax proposal and the Bradford X-tax are consumption-tax alternatives to the existing income tax.

Wealth Taxation

Saez and Zucman’s 2019 proposal of a 2 percent annual wealth tax on net worth above USD 50 million and 3 percent above USD 1 billion was central to the Warren and Sanders primary platforms. Constitutional debate centers on the Sixteenth Amendment and whether such a tax is a “direct tax” requiring apportionment (Moore v United States 2024 left the question open). European wealth tax history is mixed: France abolished its impot de solidarite sur la fortune in 2017 (replaced by a narrower real estate tax), while Switzerland retains cantonal wealth taxes and Norway revived a more aggressive structure in 2022, prompting some high-net-worth emigration.

Inheritance and Estate Taxes

The 2025 federal estate tax exemption is USD 13.99 million per individual (USD 27.98 million per couple) with a 40 percent top rate. Under the original TCJA sunset, the exemption was scheduled to drop to approximately USD 7 million in 2026; OBBBA extended the higher exemption. The stepped-up basis at death (heirs receive assets at fair market value, eliminating capital gains accrued during the decedent’s lifetime) is among the most expensive provisions of the code and a recurring reform target.

International: BEPS and Pillar Two

The OECD/G20 Base Erosion and Profit Shifting (BEPS) project produced 15 action items in 2015. BEPS 2.0 introduced Pillar One (reallocation of taxing rights for the largest multinationals) and Pillar Two (global minimum effective corporate tax of 15 percent), agreed by roughly 140 jurisdictions in October 2021. Pillar Two implementation began in 2024-2025 across the European Union, United Kingdom, Japan, Korea, Canada, Australia, and others; the United States did not adopt Pillar Two but its existing GILTI regime overlaps. The Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) ensure the 15 percent floor through top-up taxes.

Transfers and Social Insurance

Social Security (Old-Age, Survivors, and Disability Insurance, OASDI) was established by the Social Security Act of 1935. It paid roughly USD 1.4 trillion in 2024 to about 68 million beneficiaries. Funding is pay-as-you-go via the FICA payroll tax (6.2 percent employer plus 6.2 percent employee on wages up to the taxable maximum of USD 168,600 in 2024). The OASDI trustees’ 2024 report projects trust fund depletion in 2033, after which incoming payroll tax revenue would cover roughly 79 percent of scheduled benefits. Solvency options include raising the full retirement age, lifting or eliminating the taxable wage cap, raising the payroll tax rate, means-testing benefits, and altering the cost-of-living-adjustment formula.

Medicare, also from 1965, comprises Part A (hospital, financed by the HI payroll tax), Part B (physician and outpatient, financed by premiums and general revenue), Part C (Medicare Advantage private plans paid capitated rates), and Part D (prescription drug benefit). 2024 outlays exceeded USD 1 trillion. The Inflation Reduction Act of 2022 authorized Medicare drug price negotiation, with the first 10 negotiated drugs taking effect in January 2026 (Eliquis, Xarelto, Januvia, Jardiance, Imbruvica, Stelara, Farxiga, Enbrel, Entresto, NovoLog Fiasp/Mix). A second round of 15 drugs is scheduled for 2027 and a third round of 20 drugs in 2028. Round 2 includes Ozempic and Wegovy (semaglutide).

Medicaid is jointly federal-state, with the federal match (FMAP) ranging from 50 percent in wealthier states to 77 percent in poorer states, plus a 90 percent enhanced match for the Affordable Care Act expansion population. Total 2024 spending was roughly USD 870 billion. Forty states plus the District of Columbia have adopted ACA expansion. Work requirements have been litigated repeatedly; Georgia operates a limited work-requirement program.

The Supplemental Nutrition Assistance Program (SNAP, formerly food stamps) served about 42 million Americans with USD 113 billion in benefits in fiscal 2023. Unemployment Insurance is a federal-state program with maximum benefit duration of 26 weeks in most states (down from 39 in some recessions); the CARES Act 2020 Pandemic Unemployment Assistance, Pandemic Unemployment Compensation, and PEUC programs added trillions in supplemental benefits and remain politically contested.

The Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) are the main work-based transfers. The CTC is USD 2,000 per child with USD 1,700 refundable; the American Rescue Plan Act briefly expanded it to USD 3,000 to USD 3,600 fully refundable in 2021, halving child poverty before reverting in 2022. Temporary Assistance for Needy Families (TANF) replaced AFDC in 1996. Housing assistance includes Section 8 Housing Choice Vouchers and HUD project-based programs.

Health Economics

Spending and Outcomes

United States health expenditure reached approximately USD 4.7 trillion in 2023, or 17.3 percent of GDP. Per capita spending was USD 13,492, roughly 2.3 times the OECD average of about USD 5,800. The payer mix is roughly Medicare 21 percent, Medicaid 18 percent, private insurance 30 percent, out-of-pocket 10 percent, other public 8 percent, investment and other 13 percent.

Despite the highest per-capita spending, United States outcomes lag. Life expectancy was 77.5 years in 2023, having declined from 78.9 years at the 2014 peak and partially rebounded from the COVID-19 trough of 76.4 in 2021. The OECD average is roughly 81 years. The maternal mortality ratio in the United States is 32.9 deaths per 100,000 live births compared with 9.6 in the United Kingdom and below 5 in many Northern European countries.

Anne Case and Angus Deaton’s 2015 PNAS paper documented rising mortality among middle-aged white Americans driven by suicide, alcoholic liver disease, and drug overdoses (their “deaths of despair” thesis). Fentanyl drove drug overdose deaths to roughly 74,000 in 2023 before declining in early 2024 estimates. Suicide rates rose roughly 37 percent between 2000 and 2023. Gun deaths exceeded 48,000 in 2022, more than half by suicide.

Market Failures in Health Care

Kenneth Arrow’s 1963 American Economic Review paper “Uncertainty and the Welfare Economics of Medical Care” remains the canonical statement of why health care does not fit competitive market assumptions: uncertainty about illness, asymmetric information between patient and physician, the credence good nature of treatment, externalities of infectious disease, and the moral and political constraint against denying care.

Adverse selection in insurance markets follows from George Akerlof’s 1970 “lemons” framework: higher-risk individuals know their type and disproportionately buy insurance, raising premia and driving lower-risk individuals out. Rothschild and Stiglitz 1976 characterized separating equilibria in which insurers offer menus of contracts to screen risk types. Community rating and individual mandates address selection through cross-subsidy and forced participation.

Moral hazard arises after insurance is purchased: insured individuals consume more care than they would at full marginal cost. The RAND Health Insurance Experiment (1971-1982; Manning, Newhouse, and colleagues) randomly assigned roughly 2,750 families to plans with cost-sharing rates from zero to 95 percent. Higher cost-sharing reduced utilization by roughly one-third without measurable health effects for most participants, with the important exception that low-income and chronically ill participants did experience worse outcomes.

The Oregon Health Insurance Experiment exploited a 2008 lottery for limited Medicaid expansion slots. Finkelstein, Taubman, Wright, Baicker, and coauthors found that Medicaid coverage increased health care use, reduced financial strain, improved self-reported health, and reduced depression, but did not produce statistically significant improvements in measured physical health outcomes (blood pressure, cholesterol, HbA1c) within the two-year horizon.

Supplier-induced demand by physicians and informational asymmetry between physicians and patients further distort health markets.

Insurance Design

Standard plan features include deductibles (the patient pays the first N dollars before coverage begins), copays (fixed dollar amounts per service), coinsurance (a percentage of allowed charges), and an out-of-pocket maximum after which the plan pays 100 percent. High-Deductible Health Plans (HDHPs) qualify for Health Savings Accounts (HSAs) with triple tax advantage (contributions deductible, growth tax-free, withdrawals tax-free for qualified medical expenses).

ACA exchange plans are organized into tiers by actuarial value: Bronze 60 percent, Silver 70 percent, Gold 80 percent, Platinum 90 percent. Cost-sharing reductions further subsidize silver plans for households below 250 percent of the federal poverty level. Premium tax credits subsidize premia up to 400 percent of FPL (extended to no cap through 2025 by the American Rescue Plan and Inflation Reduction Act).

Pharmaceutical Pricing

Patent protection and FDA exclusivity create temporary monopolies on new drugs. The Hatch-Waxman Act of 1984 created the abbreviated new drug application (ANDA) pathway for generics, awarded 180-day exclusivity to the first generic filer, and made patent challenge a viable business. The Biologics Price Competition and Innovation Act (BPCIA) of 2010 created the biosimilar pathway.

The IRA 2022 ushered in a new era of price control. Medicare Part D maximum fair prices for the first 10 drugs (negotiated 2023-2024) take effect January 2026: Eliquis (apixaban, Bristol-Myers Squibb/Pfizer), Xarelto (rivaroxaban, Johnson and Johnson/Bayer), Januvia (sitagliptin, Merck), Jardiance (empagliflozin, Boehringer Ingelheim/Lilly), Imbruvica (ibrutinib, AbbVie/Johnson and Johnson), Stelara (ustekinumab, Johnson and Johnson), Farxiga (dapagliflozin, AstraZeneca), Enbrel (etanercept, Amgen), Entresto (sacubitril/valsartan, Novartis), and NovoLog/Fiasp insulin aspart (Novo Nordisk). Round 2 (15 drugs, effective 2027) includes Ozempic. Round 3 (20 drugs, effective 2028) is forthcoming.

The 340B Drug Pricing Program requires manufacturers to provide discounts to qualifying safety-net providers; it has expanded controversially since 2010 with disputes over contract pharmacy use. Insulin pricing reform (Eli Lilly, Novo Nordisk, and Sanofi all cut list prices in 2023; Medicare beneficiaries’ out-of-pocket capped at USD 35 per month from 2023; private insurance caps in many states) responded to a decade of price escalation.

The Institute for Clinical and Economic Review (ICER) is the leading United States health technology assessment body, producing value-based price benchmarks at willingness-to-pay thresholds of USD 50,000 to USD 200,000 per quality-adjusted life year (QALY), with extended thresholds up to USD 500,000 per QALY for severe ultra-rare conditions.

Provider Concentration

Cooper, Craig, Gaynor, and Van Reenen 2018 (“The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured”) showed that hospital prices vary by a factor of more than two across markets and that variation is driven by market structure (concentration) rather than quality or input costs. The Hospital Markup-Cost Ratio is roughly 1.4 in competitive markets and over 2.0 in concentrated markets.

Horizontal hospital mergers and vertical integration (United Health Group’s Optum acquiring physician practices; CVS acquiring Aetna and Oak Street Health; Cigna acquiring Express Scripts) have intensified. Certificate of Need (CON) regulations exist in 35 states; their net effect on cost is debated.

Medicare Advantage

Medicare Advantage (Part C) crossed 50 percent of Medicare enrollment in 2023-2024 with approximately 33 million enrollees. Risk adjustment via the CMS Hierarchical Condition Categories (HCC) model rewards plans for documenting diagnoses; coding intensity (more aggressive diagnosis coding) generates excess payments estimated by MedPAC at USD 83 to USD 88 billion in 2024. CMS Star Ratings drive quality bonus payments. The 2024 risk model (V28) and rate reductions have squeezed Medicare Advantage margins, with United Health Group, Humana, and Centene reporting elevated medical loss ratios.

Quality and Value-Based Payment

Quality measures include HEDIS (Healthcare Effectiveness Data and Information Set, NCQA), the CAHPS family of patient experience surveys, MIPS (Merit-based Incentive Payment System) for clinicians, and the Medicare Star Ratings for hospitals and plans. Accountable Care Organizations (ACOs) participate in the Medicare Shared Savings Program (MSSP) and the ACO REACH model. Bundled payment programs (BPCI-Advanced) tie payment to episodes rather than individual services.

COVID-19 and Long COVID

The pandemic caused roughly 1.2 million United States deaths through 2024 and substantial non-COVID excess mortality (delayed cancer screening, drug overdoses, cardiovascular). The long COVID disability burden is estimated at 7 to 10 million working-age Americans with persistent symptoms. Operation Warp Speed (USD 18 billion in 2020-2021) accelerated mRNA vaccine development; Pfizer/BioNTech and Moderna mRNA platforms reshaped vaccine R and D.

Opioid Epidemic and Substance Use

Purdue Pharma launched OxyContin in 1996 and aggressively marketed it as low-addiction-risk. The Sackler family extracted approximately USD 11 billion from the company between 2008 and 2017. Purdue’s 2019 bankruptcy reorganization plan included a Sackler payment in exchange for releases of third-party claims; the Supreme Court vacated the plan in Harrington v Purdue Pharma (2024), finding that the Bankruptcy Code does not authorize non-consensual releases of non-debtor third parties. A renegotiated settlement with state opt-outs was reached in 2025.

CDC overdose statistics: roughly 74,000 fentanyl-involved deaths in 2023, declining from a peak. Naloxone (Narcan) became available over-the-counter in 2023. Medication-assisted treatment uses methadone (highly regulated through opioid treatment programs), buprenorphine (X-waiver eliminated 2023 expanding prescribing), and naltrexone (Vivitrol). Supervised consumption sites operate in New York City (the first US-sanctioned sites, 2021) and globally in Canada, Switzerland, Germany, and others.

Mental Health Parity

The Mental Health Parity and Addiction Equity Act (MHPAEA) of 2008 required group health plans to provide mental health and substance use disorder benefits no more restrictively than medical/surgical benefits. The Department of Labor, HHS, and Treasury issued a Final Rule in September 2024 strengthening enforcement of nonquantitative treatment limitations (NQTLs) and requiring comparative analyses.

Health Technology Assessment Internationally

The United Kingdom’s National Institute for Health and Care Excellence (NICE) appraises drugs and technologies for the NHS at a cost-effectiveness threshold of approximately GBP 20,000 to GBP 30,000 per QALY, with higher thresholds (up to GBP 50,000) for end-of-life and severe conditions. NICE’s positive coverage decisions are binding on NHS England.

Germany’s IQWiG (Institut fuer Qualitaet und Wirtschaftlichkeit im Gesundheitswesen) conducts comparative-effectiveness analysis feeding into the G-BA (Gemeinsamer Bundesausschuss) reimbursement determination. The 2011 AMNOG law requires manufacturers to negotiate prices based on added benefit.

CADTH (Canadian Agency for Drugs and Technologies in Health) provides reimbursement recommendations to provincial drug plans. The PBAC (Pharmaceutical Benefits Advisory Committee) governs the Pharmaceutical Benefits Scheme in Australia. France’s HAS (Haute Autorite de Sante) and the CEPS (Comite Economique des Produits de Sante) determine SMR (service medical rendu) and ASMR (amelioration du service medical rendu) ratings driving prices.

Behavioral influences on health (smoking, diet, exercise, medication adherence) are increasingly the target of policy nudges; see Economics/behavioral-economics for the underlying framework.

Public Goods Game and Experimental Public Economics

The voluntary contribution mechanism (VCM) is the standard experimental setup. Each subject in a group of N is endowed with tokens. Each subject chooses how many tokens to contribute to a public pool. The total in the pool is multiplied by a factor m (with 1 less than m less than N) and divided equally among all participants. The Nash equilibrium for self-interested players is zero contribution. The social optimum is full contribution. Observed average contributions in initial rounds are roughly 40 to 60 percent of endowment. Contributions decline with repetition but do not collapse to zero. Allowing communication, punishment, or in-group identity raises contributions substantially. Ostrom 1990 Governing the Commons documented field cases of commons management through informal institutions. Elinor Ostrom won the Nobel in 2009, the first woman to do so in Economics.

Median Voter and Public Choice

Anthony Downs’ 1957 An Economic Theory of Democracy applied economic logic to political behavior. The median voter theorem states that under single-peaked preferences on a single-dimensional issue, the policy preferred by the median voter wins. James Buchanan and Gordon Tullock’s 1962 The Calculus of Consent founded public choice theory. Buchanan won the Nobel in 1986. Mancur Olson’s 1965 The Logic of Collective Action explained why small concentrated interest groups outpoliticize large diffuse ones. Rent-seeking behavior (Tullock 1967, Krueger 1974, Posner 1975) wastes resources in pursuit of artificially scarce rents.

Fiscal Federalism

Wallace Oates’ 1972 Fiscal Federalism laid the theoretical framework. The decentralization theorem assigns provision to the lowest level of government able to internalize benefits. Tiebout 1956 “A Pure Theory of Local Expenditures” proposed sorting: residents move to communities matching their preferences for public goods bundles. Common federal-state issues: Medicaid match rates, education aid, transportation funding, disaster relief. Equalization grants in Canada, Germany (Laenderfinanzausgleich), and Australia (Commonwealth Grants Commission) redistribute among subnational units.

Pharmaceutical Innovation Economics

Patent terms run 20 years from filing. Effective market exclusivity from FDA approval averages 12 to 14 years given typical 6 to 8 year clinical development time. Hatch-Waxman patent term restoration extends up to 5 years to compensate for regulatory review. Orphan Drug Act 1983 provides 7 years of orphan exclusivity. Pediatric exclusivity adds 6 months under FDAMA 1997. Biologics regulatory exclusivity 12 years under BPCIA 2010. Drug development costs: DiMasi-Grabowski-Hansen 2016 estimate USD 2.6 billion per approved drug including failures and cost of capital; Wouters et al. 2020 JAMA estimate USD 1.3 billion as a lower bound. The Bayh-Dole Act 1980 allowed universities to patent federally-funded inventions, driving biotech translation. NIH funding (approximately USD 47 billion 2024) underwrites a large share of basic biomedical research.

Medicare Part D Negotiation Mechanics

The IRA 2022 created the Drug Price Negotiation Program at CMS. Eligible drugs: single-source brand drugs without generic or biosimilar competition. Small-molecule drugs become eligible 9 years after FDA approval. Biologics become eligible 13 years after approval. The maximum fair price is calculated based on a non-federal average manufacturer price benchmark with mandatory discounts. Failure to negotiate triggers an excise tax of up to 95 percent of US sales of the drug. Litigation: Merck, BMS, AstraZeneca, Boehringer Ingelheim, Novartis, Johnson and Johnson, Novo Nordisk, and PhRMA filed suits in 2023-2024 alleging Fifth Amendment takings, First Amendment compelled speech, and other constitutional violations. District courts in New Jersey, Delaware, Connecticut, and Ohio largely rejected manufacturer challenges 2024. Appeals are pending in multiple circuits 2025.

Hospital Pricing Transparency

CMS Hospital Price Transparency Rule (effective January 2021) requires hospitals to post machine-readable files of standard charges including negotiated rates. CMS Transparency in Coverage Rule (effective July 2022 for in-network rates, January 2023 for out-of-network and prescription drugs) requires health plans to post machine-readable files. The No Surprises Act (effective January 2022) bans surprise out-of-network billing for emergency and most non-emergency hospital services. Independent Dispute Resolution (IDR) arbitration process has been heavily contested. Texas Medical Association won multiple lawsuits 2022-2023 against the qualifying payment amount (QPA) methodology.

State Single-Payer Proposals

California AB 1400 (CalCare): a single-payer health care system bill that died in committee 2022. Colorado Connect for Health Colorado, Washington Cascade Care, and other state public option experiments. Vermont’s Green Mountain Care (2011-2014) was abandoned after fiscal analysis showed required tax increases. Maryland’s all-payer rate-setting (the only US example of full hospital rate regulation since 2014). The Maryland Total Cost of Care model extended through 2026.

Disability Insurance and SSDI

Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) for disability provide cash benefits. Approximately 7.5 million SSDI beneficiaries in 2024. Determination is a five-step sequential evaluation by Disability Determination Services in each state. Initial denial rates exceed 60 percent. Administrative law judge appeals can take 12 to 24 months. Autor and Duggan 2003 documented the rise in SSDI as effective unemployment insurance for less-educated workers in declining sectors.

Adjacent

Behavioral Economics Applied to Health

Choice architecture and defaults dominate empirical work on insurance enrollment. Madrian and Shea 2001 documented the power of automatic enrollment in 401(k) plans. Similar default effects operate in Medicare Part D plan selection where beneficiaries rarely re-shop. Abaluck and Gruber 2011 estimated billions of dollars in foregone savings from suboptimal Part D plan choice. Behavioral hazard (Baicker, Mullainathan, Schwartzstein 2015) extends moral hazard to systematic mistakes.

Tobacco Control Policy

Excise taxes are the most cost-effective tobacco control intervention per WHO MPOWER framework. A 10 percent price increase is estimated to reduce consumption by 3 to 5 percent in high-income countries and 5 to 8 percent in low- and middle-income countries. US Master Settlement Agreement 1998: USD 206 billion across the major tobacco companies and 46 states. FDA gained tobacco authority via Family Smoking Prevention and Tobacco Control Act 2009. 2024 FDA proposed menthol cigarette ban; rule withdrawn under political pressure 2024-2025. E-cigarette regulation: 2020 Premarket Tobacco Product Application (PMTA) deadline; Juul received marketing denial 2022 (stayed) then settlement 2023.

Sugar-Sweetened Beverage Taxes

Berkeley California 2014 was the first US municipal SSB tax at USD 0.01 per ounce. Philadelphia 2017 at USD 0.015 per ounce. Boulder, San Francisco, Oakland, Seattle, Cook County (briefly). Mexico national tax 2014 at MXN 1 per liter (roughly 10 percent of price). UK Soft Drinks Industry Levy 2018. Cawley et al. 2019 documented Philadelphia consumption declines but cross-border shopping.

Universal Coverage Comparisons

Single-payer (Canada Medicare, Taiwan NHI, Korea NHI, UK NHS): one public payer. Multi-payer regulated (Germany, Netherlands, Switzerland): mandatory private insurance with sickness funds. Mixed (France, Japan, Australia): public base plus private supplementary. Beveridge model (UK, Spain, Italy, Nordics): tax-funded, government-provided care. Bismarck model (Germany, Belgium, France, Japan): payroll-funded sickness funds. Out-of-pocket dominant (much of low-income world): catastrophic spending poverty risk.

Cost-Effectiveness in Practice

QALY (Quality-Adjusted Life Year) combines longevity and health-related quality of life. EQ-5D-5L instrument widely used to elicit utility weights. DALY (Disability-Adjusted Life Year) used by WHO and IHME Global Burden of Disease. ICER (Incremental Cost-Effectiveness Ratio) = (cost A - cost B) / (effectiveness A - effectiveness B). NICE willingness-to-pay threshold GBP 20,000 to 30,000 per QALY for the NHS. WHO-CHOICE used USD 1x to 3x GDP per capita per DALY averted as a benchmark. US has no federal cost-effectiveness threshold; ICER (the US institute, separate from the metric) publishes value frameworks.

Public Spending Multipliers

Fiscal multipliers measure GDP response per unit of government spending change. At the zero lower bound on interest rates, multipliers above 1 are commonly estimated (Christiano, Eichenbaum, Rebelo 2011; Auerbach and Gorodnichenko 2012). In normal times, multipliers tend to be below 1. Transfer multipliers (UI, EITC, food assistance) tend to be high because recipients have high marginal propensity to consume. Tax cut multipliers vary widely; corporate cuts tend low, lower-income household tax cuts higher.

Federal Reserve Dual Mandate Intersection

The Federal Reserve’s dual mandate (price stability and maximum employment) intersects with public economics through monetary-fiscal coordination, debt sustainability, and the natural rate of unemployment. See Economics/macroeconomics for the underlying framework.

Tax Compliance and Enforcement

The IRS estimates an annual tax gap of USD 540 billion 2022 (gross gap). Net tax gap after late payments and enforcement is roughly USD 470 billion. The Inflation Reduction Act 2022 allocated USD 80 billion in additional IRS funding over a decade; subsequently scaled back by approximately USD 20 billion via the Fiscal Responsibility Act 2023. Direct File pilot launched 2024 in 12 states; expanded to 24 states 2025 for the 2024 tax year.

Tax Expenditures

The OMB and JCT publish lists of tax expenditures (revenue losses from special provisions). Largest tax expenditures (FY2024 estimates):

  • Employer-provided health insurance exclusion (USD 300 billion+).
  • Lower rates on capital gains and qualified dividends (USD 250 billion+).
  • 401(k) and IRA contribution deductibility (USD 200 billion+).
  • Mortgage interest deduction (USD 30 billion after TCJA limits).
  • Earned Income Tax Credit and refundable portion of CTC (USD 130 billion+).
  • Charitable contributions deduction (USD 60 billion+).
  • State and local tax (SALT) deduction (capped USD 10,000 per TCJA; uncapped for prior years).

Carbon Tax Proposals

US proposals: Climate Leadership Council “carbon dividends” plan (Baker-Shultz, 2017); Energy Innovation and Carbon Dividend Act introduced repeatedly. No federal carbon tax has been enacted. Washington State enacted cap-and-invest CCA effective 2023, equivalent to carbon pricing. California cap-and-trade (CARB AB 32 baseline, SB 32 extension) prices at approximately USD 30-40 per tonne CO2e 2024. EU ETS Phase 4 prices ranged EUR 60-100 per tonne in 2023-2024.

Optimal Tax Smoothing

Robert Barro’s 1979 “On the Determination of the Public Debt” argued that tax rates should be smoothed across time to minimize the deadweight loss of taxation. Temporary high spending (wars, recessions) should be financed by debt rather than tax increases. Mendoza, Razin, and Tesar 1994 estimated effective average tax rates across OECD countries.

Tax Evasion and Tax Havens

Zucman 2013 “The Missing Wealth of Nations” estimated USD 5.8 trillion in offshore household financial wealth at end-2008. Updated estimates exceed USD 10 trillion. Major havens: Cayman Islands, BVI, Bermuda, Luxembourg, Ireland, Netherlands, Singapore, Hong Kong, Switzerland, Panama. Common Reporting Standard (CRS) adopted 2014 by 120+ jurisdictions for automatic exchange of financial account information. US Foreign Account Tax Compliance Act (FATCA, 2010) requires foreign banks to report US account holders. The Pandora Papers (2021), Paradise Papers (2017), and Panama Papers (2016) leaks documented offshore practices.

Pillar One OECD International Tax

Pillar One reallocates taxing rights for the largest multinationals (revenue above EUR 20 billion, profitability above 10 percent). Approximately 100 multinationals in scope. A formula reallocates 25 percent of residual profits to market jurisdictions. Implementation requires Multilateral Convention; signing delayed through 2024-2025. Several jurisdictions imposed Digital Services Taxes (DSTs) as interim measures: France, UK, Italy, Spain, Austria, Canada (2024).

Carbon Border Adjustment

EU Carbon Border Adjustment Mechanism (CBAM) transitional phase from October 2023. Importers report embedded emissions in iron, steel, cement, fertilizer, aluminum, electricity, hydrogen. Definitive period from 2026: importers must purchase CBAM certificates at EU ETS price. Concerns about WTO compatibility; complaints filed by China, Russia, India through 2024. US Foreign Pollution Fee Act and PROVE IT Act proposals 2023-2024.

Pollution Externalities Health Effects

Particulate matter PM2.5 epidemiology: each 10 microg/m3 increase associated with 6-10 percent all-cause mortality increase (Pope and Dockery 2006 review; Burnett et al. 2018 GBD update). NOx ozone formation: respiratory and cardiovascular effects. EPA Clean Air Act health-based standards (NAAQS) for criteria pollutants: PM2.5, PM10, O3, NO2, SO2, CO, Pb. 2024 EPA tightened PM2.5 annual standard from 12 to 9 microg/m3.

Health Care Workforce

US has approximately 1.1 million active physicians and 5.3 million registered nurses. Physician shortage projections from AAMC: 86,000 by 2036. Nurse practitioner and physician assistant scope expansion in 26 full-practice-authority states. Wage growth in nursing accelerated 2020-2024 due to pandemic shortages. International medical graduates (IMGs) approximately 25 percent of US physician workforce.

Hospital Bankruptcies and Closures

Rural hospital closures: 138 since 2010 (Cecil G. Sheps Center). Critical Access Hospital (CAH) designation provides cost-based Medicare reimbursement for facilities under 25 beds. Major recent bankruptcies: Steward Health Care 2024 (the largest hospital system bankruptcy in US history), CarePoint Health 2024, Mercy Iowa City 2023. PE-owned hospital system distress: Cerberus-owned Steward; Apollo Global Management owned LifePoint and other systems.

Insurance Vertical Integration

UnitedHealth Group Optum: largest physician employer with 90,000+ physicians; PBM Optum Rx; surgical centers, infusion, home health, hospice (Amedisys acquisition pending DOJ 2024-2025). CVS Aetna: vertical with MinuteClinic, Oak Street Health, Signify Health. Cigna Evernorth: PBM Express Scripts, accredited specialty pharmacy. Humana CenterWell. Antitrust scrutiny intensifying.

Mental Health Workforce

Significant therapist shortage especially for child and adolescent. Telehealth therapy expansion: BetterHelp, Talkspace, Cerebral. Lyra Health and Modern Health employer mental health benefits. 988 Suicide and Crisis Lifeline launched July 2022.

Long-Term Care

Medicaid covers approximately 60 percent of long-term services and supports (LTSS) spending. Nursing home spending approximately USD 200 billion. Home and community-based services (HCBS): waivers and section 1915(c). PACE (Program of All-Inclusive Care for the Elderly). Long-term care insurance market collapsed in 2010s after Genworth and others repriced; few insurers remain (Northwestern Mutual, New York Life, Mutual of Omaha).

Public Health Infrastructure

CDC funding approximately USD 9 billion 2024. State health departments: principal public health authority in US federalism. Public Health Emergency declarations and PREP Act liability protections. 2014 Ebola outbreak response; 2009 H1N1 pandemic response; 2020 COVID response. ASPR (Administration for Strategic Preparedness and Response) within HHS coordinates emergency preparedness. BARDA (Biomedical Advanced Research and Development Authority) funds countermeasure development.

Vaccines

ACIP (Advisory Committee on Immunization Practices) recommendations. VFC (Vaccines for Children) program covers uninsured/underinsured children. Vaccine Injury Compensation Program (VICP): no-fault compensation funded by excise tax. Recent additions: RSV vaccines for older adults and pregnant women (Arexvy, Abrysvo, mResvia) 2023-2024. HPV vaccine: Gardasil, expanded indications through 2024. Measles outbreaks 2024-2025 in undervaccinated communities.

FDA Regulatory Pathways

Standard pathway: IND → Phase 1 → Phase 2 → Phase 3 → NDA/BLA → approval. Accelerated Approval (Subpart H) based on surrogate endpoints; post-marketing confirmatory trials required. Breakthrough Therapy Designation (BTD) since 2012 FDASIA. Fast Track Designation, Priority Review. PDUFA (Prescription Drug User Fee Act) fees fund FDA review. Aduhelm (aducanumab, Biogen 2021) accelerated approval controversy; CMS coverage restriction effectively limited use. Leqembi (lecanemab, Eisai/Biogen) traditional approval 2023. Kisunla (donanemab, Eli Lilly) approved 2024. GLP-1 receptor agonists Ozempic, Wegovy, Mounjaro, Zepbound revolutionized obesity care 2023-2025.

Hospital Charge Master and Cost Shifting

Chargemaster prices bear little relation to actual reimbursement. Allowed amounts (commercial), DRG payments (Medicare), state Medicaid rates differ substantially. 340B-acquired drugs reimbursed at higher rates create cross-subsidy debates. 2018 CMS site-neutral payment policy partially reversed 2024.

Recent Federal Tax Legislation Timeline

Tax Cuts and Jobs Act (TCJA) December 2017:

  • Corporate rate 35 to 21 percent permanent.
  • Individual rates lowered with seven brackets; sunset 2025.
  • Standard deduction nearly doubled.
  • SALT deduction capped at USD 10,000.
  • 199A pass-through deduction 20 percent.
  • Bonus depreciation 100 percent then phasing.
  • Repatriation transition tax.
  • GILTI, FDII, BEAT international provisions. CARES Act March 2020:
  • Recovery rebates.
  • PPP forgivable loans.
  • NOL carryback five years.
  • Employee Retention Credit (ERC). American Rescue Plan March 2021:
  • USD 1,400 rebates.
  • CTC expansion (temporary).
  • ACA enhanced PTC. Inflation Reduction Act August 2022:
  • Corporate AMT 15 percent on book income for USD 1 billion+ companies.
  • Stock buyback excise tax 1 percent.
  • Clean energy tax credits expanded.
  • Medicare drug negotiation.
  • USD 80 billion IRS funding. SECURE Act 2.0 December 2022:
  • Required minimum distribution age raised to 73.
  • Catch-up Roth contribution requirements.
  • Saver’s Match. Fiscal Responsibility Act June 2023:
  • Debt ceiling deal.
  • Modest IRS funding clawback. One Big Beautiful Bill Act 2025:
  • TCJA individual provisions extension.
  • Various business provisions.

State income tax migration: net migration from high-tax (NY, NJ, IL, CA) to low-tax (FL, TX, TN) states. State and local property tax limitations: California Proposition 13 1978; multiple state variants. State sales tax: Wayfair v South Dakota (US 2018) authorized destination-based collection from remote sellers. Marketplace facilitator laws: Amazon, eBay, Etsy now collect sales tax. Cannabis taxation: state-level legalization with widely varying tax structures.

Property Tax Reform Movements

California Proposition 13 limits assessed value increase to 2 percent annually. Proposition 19 (2020) modifications. Texas, Florida, others various caps. School finance equity: Serrano v Priest (Cal. 1971) constitutional challenge; subsequent state cases. Property tax circuit breakers in many states.

SNAP Reform Debate

Farm Bill 2023-2024 reauthorization debate. SNAP work requirements expanded by Fiscal Responsibility Act 2023. Thrifty Food Plan re-evaluation 2021 raised SNAP allotments approximately 21 percent. SNAP benefits redemption growth on online and quick-service. Sugar-sweetened beverage restrictions: several states sought USDA waivers (denied historically; Trump-Biden-Trump policy variation).

Affordable Care Act Premium Tax Credits

ARP 2021 expanded PTC: removed 400 percent FPL income cliff and reduced contribution percentages. IRA 2022 extended through 2025. Without extension, premium subsidies revert and “subsidy cliff” returns. Marketplace enrollment exceeded 21 million 2024.

ACA Section 1332 State Innovation Waivers

State Innovation Waivers permit state alternatives meeting ACA coverage and cost requirements. Reinsurance waivers approved in 16+ states. Georgia Access Model (private market navigator). Colorado Option public option-style plan.

Surprise Billing No Surprises Act

Effective January 2022. Bans surprise out-of-network bills for emergency, air ambulance, certain non-emergency services at in-network facility. Independent Dispute Resolution (IDR) process. Qualifying payment amount (QPA) methodology contested. Texas Medical Association v HHS multiple court wins 2022-2023. 2024 IDR rule modifications.

Hospital Price Transparency Compliance

CMS Hospital Price Transparency Rule effective January 2021. Civil monetary penalty up to USD 5,500/day for noncompliance. Compliance studies (PatientRightsAdvocate) found majority of hospitals non-compliant in early years. Trump 2025 executive order strengthening transparency.

PBM Reform

Pharmacy Benefit Manager scrutiny intensified 2023-2024. FTC interim report July 2024 critical of PBM consolidation (CVS Caremark, Express Scripts (Cigna), OptumRx). PBM Reform Act and similar bills. Medicare Part D 2024 reforms: USD 2,000 OOP cap implementation; insulin USD 35 cap.

Prior Authorization Reform

CMS Interoperability and Prior Authorization Rule January 2024. Required electronic prior authorization workflows by 2027. Required publishing of metrics. State-level PA reform laws including AB 3260 California, OK SB 1290.

Telehealth Policy

CMS extended telehealth flexibilities multiple times post-PHE. Permanent telehealth in rural areas; mental health expansion. DEA controlled substance prescribing via telehealth: extended through 2024. State medical licensure compact (IMLC) covers 39 states for cross-state practice.

Medical Loss Ratio Rebates

ACA requires individual/small group plans 80 percent MLR, large group 85 percent MLR. Insurer rebates totaled USD 1+ billion in several years 2019-2022. Mid-2020s MLR pressure increased as utilization recovered.

Risk Adjustment

CMS-HCC model: 2024 V28 model phased in over three years. Senator Wyden Senate Finance Committee investigation 2024. Centene UnitedHealth Group, Humana risk adjustment investigations and settlements. The Cigna January 2025 settlement USD 172 million.

CMS Innovation Center (CMMI)

ACO Reach, MSSP Pathways to Success. Bundled Payments for Care Improvement (BPCI) Advanced. Direct Contracting Model (now ACO REACH). Primary Care First. Kidney Care Choices. GUIDE Model for dementia. 2025 Innovation Pipeline.

Medicaid Managed Care

Approximately 75 percent of Medicaid beneficiaries in MCO arrangements 2024. Major Medicaid MCOs: Centene, UnitedHealth Group, Anthem (Elevance), Molina, CareSource. Medical loss ratio requirements vary by state. Risk corridors and capitation rates state-set.

CHIP Children’s Health Insurance Program

CHIP enacted 1997 (BBA 1997). Covers low-income children above Medicaid eligibility. Federal match higher than regular Medicaid. Funding reauthorized multiple times. Approximately 7 million children enrolled.

ERISA Preemption

Employee Retirement Income Security Act 1974. State law preemption broad for ERISA plans. Self-insured employers (ASO) avoid state insurance regulation. Rutledge v PCMA (2020 US Supreme Court) narrowed preemption for state PBM laws.

Medicare Trust Funds

HI (Hospital Insurance) Trust Fund: financed by payroll tax; depletion projected 2036 (2024 trustees report). SMI (Supplementary Medical Insurance) Trust Fund: Parts B and D, financed by general revenue and premiums. 2024 trustees report.

Major Welfare Reform History

Aid to Families with Dependent Children (AFDC) 1935-1996. Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) 1996. Replaced AFDC with Temporary Assistance for Needy Families (TANF). Time limits (5 years federal); work requirements.

Disability Insurance Reform

SSDI rolls grew rapidly 1980s-2000s. SGA (substantial gainful activity) thresholds. Trial work period and extended period of eligibility. Ticket to Work program 1999. Reform proposals: time-limited benefits, partial benefits.

State Earned Income Tax Credits

31 states plus DC have state EITCs. Match federal EITC by varying percentages. California CalEITC most generous beyond federal. New York, Maryland, Massachusetts, Minnesota, Wisconsin among progressive examples.

Federal Reserve Stress Tests

Dodd-Frank Act Stress Test (DFAST) and Comprehensive Capital Analysis and Review (CCAR). Bank capital adequacy under severely adverse scenarios. 2024 stress test added explore scenarios. 8 G-SIBs and other large banks subject to enhanced supervision.

Treasury Tax-Exempt Bonds

Municipal bond interest exclusion from federal income tax. Build America Bonds 2009-2010 (taxable with federal subsidy). Private activity bonds (PABs) subject to alternative minimum tax. Tax-exempt revenue versus general obligation bonds.

Social Security Solvency Options

Raise full retirement age (currently 67). Lift or eliminate taxable wage cap (USD 168,600 2024). Raise payroll tax rate (currently 12.4 percent combined). Means-test benefits. Modify cost-of-living formula (chained CPI). 2024 trustees: 2.74 percent of payroll needed to maintain solvency 75-year horizon.

Long-Term Care Financing

Means-tested Medicaid coverage of nursing home care. Spend-down rules and Medicaid Estate Recovery. Private LTC insurance market collapsed 2010s. WA Cares Fund (Washington State public LTC insurance). Hybrid life-LTC products. Long-term care insurance combinations.

State Tax Reform

Income tax repeal movements: Mississippi, West Virginia, Iowa cutting rates. Texas, Florida, Washington, Tennessee, Nevada, Wyoming, South Dakota, Alaska no individual income tax. Property tax referenda recurring. State and local sales tax rates: highest combined Louisiana, Tennessee, Arkansas.

Tobacco: USD 1.01 federal cigarette tax per pack since 2009; states add up to USD 5.35 (New York). Alcohol federal excise: USD 13.50/proof gallon spirits, beer USD 18/barrel. Cannabis: state-level taxation widely varying. SSB (sugar-sweetened beverage) tax: Berkeley, Philadelphia, Boulder, San Francisco, Oakland, Seattle, Cook County (repealed). Vaping tax: multiple states.

Health Insurance Marketplace Updates

Open enrollment 2024-2025: November 1 to January 15. Auto-renewal default. Special enrollment periods. Healthcare.gov serving 32 states; 18 states + DC state-based marketplaces.

Drug Importation Programs

FDA approval of Florida drug importation program from Canada January 2024. First imports anticipated 2025. Concerns about Canadian supply impact. Multiple state proposals for similar programs.

Medicare Eligibility and Enrollment

Age 65 standard eligibility. End-stage renal disease (ESRD) and certain disabilities. Medicare Advantage open enrollment annually. 2024 enrollment: approximately 33 million Medicare Advantage.

Federal Health Workforce Programs

National Health Service Corps loan repayment. Indian Health Service. VA medical centers. Public Health Service Commissioned Corps. Title VII and VIII training grants.

CMS Innovation Center Models 2025

ACO REACH (Accountable Care Organization Realizing Equity, Access, and Community Health). Making Care Primary (MCP) launched 2024 in 8 states. GUIDE Model dementia care. TEAM (Transforming Episode Accountability Model) for joint replacement and hospital procedures. Cell and Gene Therapy Access Model.

Texas v United States (mifepristone abortion pill case): US Supreme Court 2024 stay maintained access. Idaho v United States (EMTALA emergency abortion): 2024 dismissed as improvidently granted. Hospitals’ 340B disputes including Astellas-Genentech-Merck contract pharmacy. Section 232 tariff disputes affecting medical device costs.

Medicaid Section 1115 Demonstration Waivers

Work requirements: Arkansas 2018 implementation; many waiver applications. Reentry initiative (pre-release Medicaid for incarcerated). Healthy Indiana Plan. Florida MMA program. New York 1115 health equity waiver. California CalAIM.

Healthcare Mergers and Antitrust

FTC v Hackensack Meridian / Englewood 2022 blocked. FTC v Lifespan / Care New England 2022 blocked. DOJ v Banner Health / TMC. HSR threshold for hospital deals. Vertical integration scrutiny: UHG-Change Healthcare cleared.

Health Equity Initiatives

CMS Office of Minority Health initiatives. ACA Section 4302 stratified data collection. Medicare Advantage health equity index 2027. HHS Office of Minority Health.

State Public Option Plans

Washington Cascade Care. Colorado Connect for Health Colorado. Nevada SB 420 (passed but not implemented). California considered but did not enact.

Mental Health Parity Final Rule

September 2024 Final Rule under MHPAEA. Strengthens nonquantitative treatment limitations (NQTL) analysis. Comparative analyses required. Annual fiduciary attestation.

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