Here's what healthcare looks like in a perfect world
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Republicans replacing Obamacare, beware — it has a certain logic. Much of the Affordable Care Act patches up unintended consequences of previous regulations. If we just roll back and patch once again, we will end up right back where we started. 

It’s wiser to start with a vision of the destination. In an ideal America, health insurance is individual, portable, and guaranteed renewable. It includes the right to continue coverage, with no increase in cost. It even includes the right to transfer to a comparable plan at any other insurer.

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Insurance companies pay each other for these transfers and then compete for both sick and healthy patients. The right to continue coverage is separate from the coverage itself. You can get the right to buy gold coverage with a silver plan. 

 

Most Americans sign up as they graduate from high school, get a driver's license, register to vote, or start a first job. Young, healthy people might choose bare-bones catastrophic coverage, but reserve the right to step up to a more generous plan later. Nobody’s premiums subsidize others, so such insurance is cheap.


People keep their individual plans as they go to school, get and change jobs, or move around. Employers may contribute to these individual plans. If employers offer group coverage, people keep the right to individual plans later.

Health insurance then follows people from job to job, state to state, in and out of marriage; just like car, home and life insurance, and 401(k) savings.

But health insurance is not a payment plan for small expenses, as home insurance does not pay for lightbulbs. Insurance protects your wallet against large, unexpected expenses.

People pay for most regular care the same way they pay for cars, homes, and TVs — though they're helped to do so with health savings and health credit accounts to smooth large expenses over time. Doctors don’t spend half their time filling out forms, and there are no longer two-and-a-half claims processors for every doctor.

Big cost control comes from the only reliable source — rigorous supply competition. The minute someone tries to charge too much, new doctors, clinics, hospitals, and models of care spring up competing for the customer’s dollar. Access to health care comes like anything else, from your checkbook and intensely competitive businesses jockeying for it. 

What about those who can’t afford even this much? Nobody dies in the street. There is also a robust system of government and charity care for the poor, indigent, and victims of rare, expensive diseases. For most, this simply means a voucher or tax credit to buy private insurance. 

But  the government no longer massively screws up the health insurance and health care arrangements of the majority of Americans who can afford houses, cars, smartphones, and health care in order to help the unfortunate. We help people forthrightly, with taxes and on-budget spending.  

Why do we not have this world? Because it was regulated out of existence, and now is simply illegal.


The original sin of American health insurance is the tax deduction for employer-provided group plans — but not, to this day, for employer contributions to portable individual insurance. Insurance then became a payment plan to maximize the tax deduction. It became horrendously inefficient as people were no longer spending their own money. 

Worse, nobody who hopes to get a job with benefits then buys long-term individual insurance. This provision alone pretty much created the preexisting conditions problem.

To address pre-existing conditions, the government mandated that insurers must sell insurance to everyone at the same price. Insurance companies will then try to avoid sick people, so coverage must be highly regulated. Healthy people won’t buy it, so it must be nearly impossible for people to just pay out of pocket. Obamacare added the individual mandate. 

Cross-subsidies are a second original sin. Our government doesn’t like taxing and spending on budget where we can see it. So it forces others to pay — it makes employers to provide health insurance. It forces hospitals to provide free care. It low-balls Medicare and Medicaid reimbursement. 

The big problem is that these patches and cross-subsidies cannot stand competition. Yet, without supply competition, costs increase, the number of people needing subsidized care rises, and around we go. 

The Republican plans now circulating make progress. Rep. Tom Price’s (R-Ga.) plan ties protection from pre-existing conditions to continuous coverage. His and Speaker Paul RyanPaul RyanGOP health bill could shred safety net for millions Overnight Finance: GOP bill would leave 23M more uninsured, says CBO | Trump aides defend budget | Mnuchin asks for clean debt hike before August | Ryan says House could pass bill without border tax Bipartisanship? It may be possible thanks to this little-known group MORE’s (R-Wis.) “Better Way” plan move toward premium support for private insurance, and greater portability. 

So far, the announced plans do not really overturn the original sins, but they were crafted in a different political landscape. We can now go big and really fix the government-induced health care mess in a durable way. 

I visited my dermatologist last month. I spent 20 minutes with a resident and five minutes with the dermatologist. The bill was $1335. An “insurance adjustment” knocked off  $779, insurance paid $438 and I paid $118. The game goes on.

We start with a fake sticker price to negotiate with the uninsured and to declare uncompensated care, but you cannot just walk in and pay as you can for anything else. Even $438 includes a huge cross-subsidy. We’ll know we’ve fixed health care when we don’t get bills like this. 

 

John Cochrane is a senior fellow of the Hoover Institution at Stanford University and an adjunct scholar of the Cato Institute. 


 

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