I saw another post today on health care which almost got it right. Not all of the post, the "we are all to blame" part screams too much of compromise, and the bashing of insurance companies is wrong headed, but the solution is almost right, and that is what I care about. Here is the comment posted about John Shadegg's article:

Now back to the healthcare problem. As I said before its everybody's fault. I know that we want to blame government and the left wants to blame enterprise, but we must all realize that everybody has a hand into the problems with our healthcare.

My solution as I said before, is to get rid of these insurance companies that are robbing us blind all together, therefore leaving prices to be based solely on supply and demand. That way we all win.

Without insurances companies inflating prices, medicine and doctor's visits will come down. Now they probably won't come completely down to copay prices, but thats ok, the prices will be where they should've been in the first. and as one commenter said, it would reduce demand because everybody and their grandmother wouldn't go the doctor because of a sore throat, thereby reducing demand and in turn price.

Now, as I said, he is wrong that free enterprise had any part in the health care crisis. What has been laid at the door of "the market" is always the fault of government distortion. Third party payers? Due to government incentives dating back to FDR. HMOs? The private sector response to government DRGs. Expensive health care equipment? Because the government sues Certificates of Need to artificially reduce demand, preventing both economies of scale and sufficient experience to improve production. Face it, had the government regulated autos like medical care, we would be driving model T's, owned by the government and operated on some sort of time share basis, with ten owners to a car.

Still, ignoring that part, the idea of eliminating insurance is a thought along the right track, just a bit wrong.

There is no need to eliminate insurance, that would be a violation of the right to contract, and an unnecessary intrusion into the market by government. Insurance is fine, it works in many contexts. Health insurance is a fine idea, for those who want it. What we need to eliminate is the idea that everyone should, even must, have health insurance.

Our modern practice of health insurance comes from World War II (though I have heard it attributed tot he 30's, every reference I found mentions wartime wage caps). Prevented from competing in wages by wartime caps, employers started to offer benefits to make their jobs more attractive than those of their competitors. Eventually the government involved itself and also made these sort of benefits pre-tax deductions, making the insurance even cheaper for those employees who had to pay part of the cost. As a result, a majority of those in jobs above minimum wage had health insurance for which they paid only a small part, and whose benefits were unrelated to their risk, health factors, or anything else. On top of this, the government started funding health care itself, providing various forms of insurance to the poor.  As a result, insurance covered a large percentage of the population. And those unable to obtain insurance were still assured care by state laws prohibiting hospitals from turning anyone aside. (Though, in reality, most hospitals, if not all, had enacted a voluntary policy of doing the same, making state laws largely unnecessary.)

With almost everyone who saw a doctor covered by some form of insurance, price considerations became a thing of the past. And with tort laws making the standard of care rise to ever more absurd heights, doctors were wary of refusing or even offering to omit any procedure for fear of a lawsuit. Thus we see even the most minor head bump receiving an MRI, for example, as doctors engage in defensive medicine, and patients agree as they have to shoulder little or none of the cost. This also means that patients no longer need to make decisions about cost and benefit trade offs. If there is an expensive, extra special procedure that gives even the most minute benefit, why not do it if the cost will be paid by someone else?

And so we spent more and more on health care (already made more expensive by many government interventions I won't discuss here), both as defensive medicine, and even more as patients did not care about costs. Where int he past a patient would have to balance his health needs against what he could afford, now the sky was the limit, and the health care sector took up ever more of our economy.

The funny part is, the left tends to blame this on the market, while it is entirely a creation of the government, through its handling of employer subsidized insurance, its provision of insurance for the poor and elderly, and through its courts and their bizarre view of liability.

But that is another essay as well. Here I want to talk about solutions.

As I said, eliminating insurance is not an option. What we need to do is make insurance a personal choice once again, and a true insurance, based on risk assessment and true risk pooling, not simple groups. And more than that, we need to separate employment and insurance, and government and insurance. (We also need to rein in tort law, especially in malpractice, where perfection seems to be the implicit standard of care, but that too is another essay.)

My basic idea is to eliminate tax benefits for insurance. In fact, to view insurance as any other payment. Once we make it in no way beneficial to offer insurance, it is likely many employers will stop doing so, or will offer employees the option of taking cash instead of insurance. (We may also need to look into insurance regulations, as I am not sure what other "incentives" are built into the system, or what regulations on insurers cause them to behave in somewhat counterintuitive ways.) If we can separate insurance from employment, and better still, if we can make the cost of insurance coincide with one's true risk, it is likely many fewer individuals will carry the sort of insurance they have today. Most might still carry some sort of catastrophic policy, but I doubt many would have the comprehensive coverage they have today. And once they start paying out fo pocket, I can guarantee price competition will become a reality.

POSTSCRIPT

One simple reform that might spur some changes is a simple one. My wife had insurance for a while which did not directly pay one fo her doctors (I forget why). Instead she had to pay the doctor herself then file for reimbursement. As anyone who has ever had to file an expense report can tell you, though you know you will be compensated, the headache of the paperwork and the wait for reimbursement means you will do everything you can to avoid having to file an expense report. And the same with health care. When my wife had to go through this elaborate policy, she was much more reluctant to see that doctor than she has been since. So, simply cutting off direct reimbursement could, in itself, make individuals a bit more sensible in choosing which doctors to see and when. And the need to pay first would definitely help spur price competition.

POSTSCRIPT II

On a related note to my first postscript, I know there is some truth from another analogous situation. My employer changed from expense reports to employee credit cards. You still had to file a report about what you bought, but you didn't pay out of pocket and didn't have to wait for reimbursement. The result? Spending skyrocketed. Employees started charging things they never did before. Why? Because it was too easy.

The same is true of our present insurance system.