How has public policy influenced the incentives of consumers to economize and suppliers to provide their services economically in the health-care industry?

Public policy has generally promoted payment for health-care services by third parties (either the government or insurance companies) rather than saving and/or direct payment. While health insurance provided through one's employer, including low deductibility plans with small co-payments, are tax-deductible, out-of-pocket medical expenses (except for those greater than 7 percent of income) are not. Neither is health insurance purchased directly by an individual or family. From a tax standpoint, insurance plans covering medical expenditures beginning with the first dollar of cost are treated in the same manner as catastrophic plans that cover only extraordinary expenses. All of this encourages the third-party payment of medical expenses and, thereby, reduces the economizing behavior of both health-care consumers and suppliers.