Arnold Kling is thinking about health care finance again, and that’s a good thing. The entire article is well worth reviewing, as Mr. Kling does a particluarly good job of summarizing the defects in the America’s health care finance system:

* Many people lack health insurance. This includes Do-Nots as well as have-nots.
* Poor people, although covered by government programs, are not able to access health care providers in a timely fashion. They obtain too little preventive care and consequently make too much use of hospitalization. In order to improve on certain key health care indicators, such as infant mortality, the United States has to find a way to bring poor people under the umbrella of our health care system.
* The system of employer-provided health insurance distorts choices. It makes it costly for people to change jobs, especially to become “free agents.” It puts ordinary firms in the health insurance business, penalizing small firms, for which this is more of a burden. It injects ordinary corporations into the decision-making process of consumers with regard to choice of insurance and even (through “preferred-provider” systems) with regard to choice of doctor.
* Our system tends to subsidize “first-dollar” coverage rather than catastrophic coverage. Catastrophic coverage is like auto insurance that pays in the case of an accident. First-dollar coverage is like auto insurance that pays for gas and tolls. First-dollar coverage results in more paperwork and reduced incentives to control costs.
* People with break-the-bank illnesses, such as diabetes or cancer, cannot switch insurance companies.
* Consumers have little incentive to take responsibility for their health. Smoking and obesity make little or no difference to insurance premiums.
* Consumers have little incentive to take financial responsibility for health insurance. Instead of encouraging consumers to save to pay for the high cost of insurance when they are older, we tell them that they can count on Medicare.

Mr. Kling does not view increasing government’s role in health care finance as a viable option. Rather, he views government’s best role as that of a facilitator of consumer choice:

However, the solution is not to enlarge government’s role. What I would like to see is a role for government in health care that is streamlined, rationalized, and bounded. I call this approach “limited paternalism.”
My belief is that most consumers are capable of making the best decisions about health care most of the time. The buzzword for this is consumer-driven health care.

Mr. Kling’s consumer-driven health care finance system would have the following components:

* Direct provision of health care services to the poor. For example, government-subsidized clinics in poor neighborhoods with nominal charges (say, $10 per visit).
* Aim to switch from a system of employer-provided health insurance to consumer-purchased health insurance, by ending the tax deductibility of insurance for corporations and eliminating requirements that companies provide health insurance.
* Mandatory catastrophic health insurance for all families not eligible for Medicaid. Rather than expand Medicaid and other government programs upward to the middle class, as some Democrats propose, tighten eligibility for these programs and require co-payments for all but the poorest participants. Eventually, phase out Medicaid and replace it with health care vouchers.
* Phase Out Medicare, and instead mandate health care savings accounts (explained in this earlier post). This would change the medical portion of retirement security from a defined-benefit plan, which Congress will tend to pack with benefits that it cannot pay for, to a defined-contribution plan, which is much sounder financially and much fairer generationally.
* Institute government-provided “catastrophic reinsurance” for very high medical expenses. The Kerry campaign has proposed this for expenses of over $50,000 per year. The purpose of catastrophic re-insurance is to enable private insurance companies to compete for business without having to screen out high-cost individuals. Of all the mechanisms for spreading the cost of break-the-bank illnesses among the general public, catastrophic reinsurance would involve the government in the least number of individuals and the least number of medical decisions. While the rest of the Kerry health care plan tends to be the opposite of what I would like to see, this proposal strikes me as a good plank in any health care reform platform.

Read the entire piece as well as Mr. Kling’s follow up blog post on the article. I believe that the Bush Administration and the Republican-controlled Congress’ failure to address health care finance reform in a meaningful fashion is one of the big reasons undermining independent voters’ confidence in the Administration during this political season.