Uwe Reinhardt posted this insightful Economix post last week in which he bores in on the key issue to be resolved in reforming the U.S. health care finance system:

I could easily offer every American family a health insurance policy it could afford, simply by varying judiciously the annual deductible, the coinsurance rate, upper limits on items ostensibly covered by the policy and exclusions from coverage of sundry services or products ó for example, mental health services or certain specialty drugs.

The policy might be a sham; but it sure would be cheap.

Health insurance is just a means by which needed health care can be made ìaffordableî to Americans when they fall ill. Therefore the proper target of health policy should be the familyís total outlay on health care, including out-of-pocket spending. That total outlay on ìneeded health careî should be made ìaffordable.î

Which requires us to define concretely, for practical purposes, what we mean by ìhealth careî and ìaffordable,î pedantic as that may sound. Politicians should be forced to be utterly clear about it. [.  .  .]

President Obama could make this idea practical by using a visual device such as the table [above]. In that table ìdisposable incomeî is defined as all personal income from whatever source minus all personal income tax payments and other government deductions. The numbers are annual.  .   .   .

Professor Reinhardt makes a good point about the disingenuous nature of health insurance. As I noted here, most forms of health insurance ñ particularly the employer-based kind — insulate consumers from understanding the truce cost of their health care choices. As a result, most consumers ñ and virtually all legislators in Washington ñ have no idea on what amount of health care costs are ìaffordable.î Most insureds are pleased that someone else is footing the bill and simply donít want to lose that perk.

Health insurance is largely the product of bad governmental policy (wage controls during World War II) and, as is often the case with such policies, there are unintended consequences that are even worse than the misdirected governmental policy. In this case, we have two generations of Americans who have been largely insulated from needing to know the true cost of some of their most fundamental choices and needs in life.

Such ignorance is now hindering reform of the fractured U.S. health care finance system.  But any health care finance reform that does not rely at least in part on reigniting a consumer market to control costs will likely be even more expensive and less satisfying than the current system.