Blast and damn the current bill; it’s a travesty. It must not be passed because it would be a wrecker of a bill. So let’s forget about it for a minute. Blank slate time.

Let’s talk first principles. Let’s talk about ideals. Let me blather for a while and see what I come up with, and tell me what you think.

This is my stab at a statement of principles and blithe assumptions about what a healthcare system should look like. I freely admit partisan biases; nonetheless, I’m going to try to do my best to optimize these principles for equity and humanity - through a filter of economic reality.

1. Emergency care for people in serious danger of dying must be provided regardless of ability to pay. Those who are uninsured must be paid for out of tax funds or private charity.

2. Each American is a free person, autonomous of body and mind, unless duly bound by law as a prisoner, involuntary patient, POW, etc. If you don’t basically agree with this principle, btw, you might as well bow out now.

3. As free people, Americans are responsible for their own ordinary and routine medical expenses. This includes doctor’s visits, vaccinations, splinters, wellness. As a general estimate, say any one-time non-recurring expense of $200 or less, or any ongoing expense of $100/month or less. You buy your own food. You rent your own home. You pay for your own medicine. This is your job to pay for; you can “insure” for it if you want through some collective means, but if you’re able-bodied and employed it isn’t anybody else’s problem (but see #5).

4. Unlike every other form of consumer good, health care beyond the point of basic wellness is something that very few people want to buy. I do not want $1,000,000 worth of medical care over any short period of time. No one does. If I go the rest of my long and healthy life and never spend more than a few hundred dollars a month on my health care, I will thank God every day of it. So would every other American.

5. There is a moderately sized group of people for whom #3 represents a very large burden, or even an impossibility. It is necessary for reasons of elementary decency that these people be able to get that modest benefit. This level of service can easily be provided by public and private charitable operations; a mini-Medicaid. Taxation and donations - in whatever proportions the American people think appropriate - will not be an onerous burden on the public purse. Far cheaper than what we have now!

6. That leaves Everything Else. Everything Else is cancer, broken bones, wheelchairs, ambulances, tragedy. Nobody wants to live in the world of Everything Else, but we have to deal with it. So how?

7. Principle #4 makes marketing healthcare an interesting challenge, but the economics of healthcare remain subject to market laws. Water doesn’t run uphill, doctors who want to work for charity generally do it in Africa or Indonesia, and clinics are not built and paid for by forest elves with magical lyres of building. Everything costs money. TANSTAAFL.

8. The first recourse for paying the bills ought to be an individual’s own pocket. It’s my life, or my daughter’s life - the bill may hurt but it’s mine to pay. If I set a building on fire by accident, I have to pay the damages. This is a basic principle underlying the orderly, self-regulating behavior that American institutions rely on.

9. Many individuals wince at the idea of having to come up with $30,000 for a series of CAT scans or $1,000,000 for a couple of months of leukemia treatment or something even worse. And of course some treatments are simply not affordable to many people; Bill Gates could shrug off a million but damn few others could. Therefore, it makes a great deal of sense for people to insure against the unlikely, but real, chance of an acutely terrible incident or the development of a chronic and expensive condition.

10. It is extremely unjust - unfair and socially destructive in the extreme - for such an expense to overwhelm a family or an individual’s financial resources. To mitigate that dreadful risk, prudent individuals, particularly those who are not extremely wealthy, will want to hedge their positions against such a calamity. One word for that hedging is “insurance”, although the word has become badly abused in the political arena. I am here using it in its purest form, to mean buying a certain amount of coverage against a certain range of possible future events, at a cost determined largely by the actuarial calculations of the [hopefully adequately regulated] insurer.

11. The market is perfectly capable of providing limited-liability insurance to cover discrete or ongoing conditions. There are novelties and wrinkles in healthcare that make such insurance quite interesting to afficionados of the actuarial arts, of which complement I do not number myself. Most people can therefore afford to insure themselves, if they choose. For those who cannot, or for whom the actuarial realities of their condition mean that their premiums would become prohibitive, we must again turn to private + public charity; an Insurance Fund, perhaps. More expensive than providing routine care to the poor, but again, a sum not unmanageable in our Federal and state economies.

12. There will be many people who choose not to insure, particularly among the working poor. Wealthy self-insurers do not pose a social risk; if Bill Gates chooses to risk sacrificing a percentage point of his net income one year, what business of ours? Relatively poor self-insurers are a very different story. One way to greatly mitigate this risk pool is to offer a refundable tax credit in the lower tax brackets. I would offer a credit of 125% of the taxpayer’s health insurance premium for the year - meaning that a family of modest means actually *makes money* by buying whatever health coverage they can afford. The credit could have a floating cap, that should be high enough to cover an ordinary coverage policy (say 40th percentile of national policy sizes). Again, this would cost some money, this time all taxpayer funds.

13. A few resentful soreheads will still say “screw you” and not buy insurance. Let them. If they get sick, let them die if charity won’t take them. If their child gets sick, treat them on the public nickel and send the parent a bill. If they don’t pay, take away their cable TV and then leave them be.

14. The soreheads are not the main problem; the main problem are the people whose costs exceed the insurance benefits that they did buy. How do we say “sorry, no more care” to a single mom who busted her ass to afford a policy that gave her $500,000 worth of coverage, when her baby gets leukemia and the bill is going to be $2 million? We don’t. We can’t.

15. My instinctive answer to #14 is, “so we pay the bill for the leukemia baby out of tax money, and pass the expense along somehow”. That works fiscally, but it breaks the system morally; nobody will buy $1M of insurance when they know the taxpayer will secretly cover them if their bet doesn’t pay off.

16. However, I think that we can correct for the moral hazard. First, anyone who gets an overage paid on their insurance coverage has it applied to their tax account as a theoretical interest-free negative balance. They are not expected to pay it off - but it will absorb any future tax refund or credit until the balance is negated. That is a definite disincentive, especially at the working-poor level where tax time is sometimes a happy time because there’s a big refund coming. Those people do not want to lose that refund; they will check their tendency to underinvest in insurance. Second, there can be a “deductible” on the moral hazard. The patient or his parent could be considered accountable, on a cash basis, for some fraction of the overage - perhaps up to an amount limited to the average of their last few reported net incomes. Someone rich could be on the hook for six figures; poor folks might have to come up with ten or twenty grand. Again, powerful disincentive. So most people will insure to the best of their ability.

17. If employers want to provide health care insurance to their people as a benefit, that should be encouraged in whatever non-subsidizing way is possible. But it isn’t fair for one type of person getting health insurance to get a tax break while their almost identical neighbor doesn’t get the break, just because of where they get their paycheck. The tax subsidy must be extended to everyone (whee! more costs!) or taken away from the people who get it now.

18. We’ve now covered just about everyone. The poor get their basics covered free, and can get help buying insurance - in fact, a modest insurance investment actually pays them back. People get good tax treatment for buying health insurance, but are not coerced into doing so. When a really horrific expense swamps your health insurance, the government will bail you out as a last resort - but you won’t like April 15th very much from then on, and you can forget about the Jetski for Christmas.

19. The system creates places where people are tempted to drop coverage. For example, after a major (coverage-blowing) expense, the tax advantages of insuring disappear. In addition, premiums will increase for people in future periods after major expenses are incurred, possibly making them unaffordable. (Quite likely, in many cases.) For these people, a tax penalty is appropriate if they do drop coverage (as a demotivator), but it should be a one-time penalty rather than a permanent punishment.

20. People in that position must face an unfortunate reality: society’s resources are limited. Once it’s known that you’ve got an expensive condition, there is a finite upper bound on what can be done for you. The government can exert regulatory pressure on insurance companies to keep premiums actuarially fair - they can’t charge you $20,000 a year for coverage if their tables show that it will probably only cost them $2000 to deliver - but the insurance transaction of a bet that something will or won’t happen has transformed into a pretty much sure thing. Insurance is a great hedge, but a poor financier.

21. So every year, we will have a population of people who are essentially uninsurable. The population will not be stable; every year some of its members will die. Sorrow. If the systems as I have described them above work, the number of people joining the pool should be relatively small.

22. People in the pool have basically three choices, when they incur additional costs. They can raise the money themselves, somehow - although obviously this money is going to run out at some point for everyone except Bill Gates. They can quietly give up and die. (This sounds callous, but think about it: if you’ve been through $2 million of cancer treatments and things still don’t look good, it is not at all unreasonable to say “ok, that’s enough”. People do this every day now, so we know at least some will make the choice in the future.) Or they can turn to private charity.

23. Private charity has some role to play in funding basic care for the poor, in helping the working classes afford insurance, etc. But this is where private charity really can shine. The population that needs to be helped is relatively small, and does not grow exceptionally from year to year. The population to be helped is extremely easy to identify, and fairly easy to validate; they’re the ones standing at the door with a cancer diagnosis and a shoebox full of insurance claims. There are three kinds of people in this population that I can think of:

a) People who have something terrible fatal far in excess of their coverage and who need expensive care for a little while but who are then certainly going to die.
b) People who have an expensive ongoing condition, have used up their insurability, and who need help, but who will live out their lives if they can just get that help.
c) People who have an expensive ongoing condition and no insurability, but who even with help are not likely to have an independent productive life.

The nice thing about private charity is that it can decide on its own priority for addressing these needs. I would meet all the needs of group b, then as many of the needs of group c as could be addressed, and then group a as we could manage. Other may have other priorities.

The Suicide Note

So how do we pay for all this stuff? Well, to a large extent, if we did things this way we could close down Medicaid and Medicare both. Old people can buy insurance the same as everybody else, and poor people will be covered by the new rules. That’s a few shekels right there.

The rest of it, we would have to raise taxes.

In Conclusion…

Is this perfect? No. And I welcome constructive criticism of it aimed at making it better. But I think it’s pretty good, and I think it would work overall as a basic system.

Certainly a lot better than the JailCare that’s on the docket today.

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Bob Hayes is the senior partner at DocRocket, a web content and writing services company. He is a freelance business consultant with particular expertise in software, Internet business development, and operational efficiency. In addition he maintains a personal blog at Bob Hayes Online.