In this post, Cal-Berkeley economics professor Brad DeLong examines an interesting aspect of John Kerry’s health care finance plan:

[T]he Kerry campaign has dusted off and brought forward a very clever idea from Brandeis’s Stuart Altman to not eliminate but at least diminish the magnitude of these two ways that market-based health-care reforms self-destruct. The idea? Have the government take its task of social insurance seriously, and reinsure private insurers and HMOs: construct a ‘premium rebate’ pool to pay annual health-care bills over $50,000. This greatly diminishes the cost to insurers and HMOs of covering the really sick. The cost of treating the really sick will then be on the taxpayer rather than on the insurance-purchasing consumer. Insurance rates will fall. And the incentive for the young without many assets to go naked and uninsured will diminish as well.
Thus two of the big problems with our health care system become smaller problems. If this plan is enacted, we will no longer have to worry as much (i) adverse selection–the enormous financial incentives HMOs and insurance companies have to figure out some way not to cover the sick people–and (ii) cost shifting–the fact that those who buy insurance have to pay not only their own routine costs and their own catastrophic costs but the catastropic costs of others and the uninsured as well. The first means that–often–those who need health care the most have a hard time getting it. The second means that–often–those who could afford or would buy insurance if it were priced at its fair actuarial value don’t because of this cost shifting.

This is an interesting proposal. In short, the government would offer reinsurance for catastrophic health care costs. In so doing, this would reduce the incentive for health insurance companies to avoid providing insurance for high-risk applicants. At least in theory, the cost of health insurance should decline, which would make it more attractive to consumers. In effect, the Kerry proposal would make the government’s role in health insurance similar to its role in automobile insurance, where the government subsidizes coverage for the highest-risk applicants.
Indeed, as Professor DeLong points out, the Kerry proposal is consistent with the interests of the Bush Administration’s approach to health care finance. Why then has not the Administration adopted such a proposal? Simply another example of the void of creative policy development that is currently taking place under this Administration.