The Responsible Market-based Universal Health Care Plan

Published on July 25, 2017 by

Months ago, someone asked me what I would do about health care in the United States. My preferred health care policies stand no chance whatsoever of being made into law, but I’m going to explain how I would structure the system if I were in charge.
Warning: Not only is this a long post, but if you want to criticize or argue with anything I’ve said, then you must read not only my whole post, but also every source I link to. If you can’t be bothered to do the reading, I can’t see why I should be bothered with your comment.

The main principles behind my policies are:

  1. Using free-market competition to lower costs where possible
  2. Using self-interest to lower costs where possible
  3. Encouraging personal responsibility
  4. Respecting people’s liberty
  5. Providing universal coverage

This plan would also completely replace Medicare and Medicaid, and would do away with the tax exemption for employer-provided health benefits.


Part I: Pricing Reform

One of the biggest problems with our health care system is that pricing is generally opaque to the consumer. While I don’t agree with all of the proposed policies, I think this blog post on Market-Ticker.org has a lot of really good ideas about how health care pricing could be reformed on a free-market basis (i.e., without the government setting prices, which generally ends badly.) For example:

  • “All providers must post, in their offices and on a public web site…, a full and complete price list which shall apply to every person.”
  • “For a bill to be valid and collectible it must be affirmatively consented to in writing, with a disclosure of the actual price to be charged from the above schedule for each item to be provided whether good or service, prior to the service being performed or the good furnished, subject only to the emergency exception below.”
  • “No event caused by or a consequence of treatment can be billed to the customer.”
  • “Auxiliary services (e.g. medical or dental Xrays, lab testing, etc) may not be required to be purchased at the point of use.”
  • “Any test or diagnostic that carries no exposure to drugs or radiation, nor is invasive beyond a blood draw, may be purchased without doctor order or prescription.”
  • “Wholesale drug pricing in the United States must be on a ‘most-favored nation’ basis.” (Basically, this means drug companies must sell drugs to wholesalers in the U.S. at the lowest price they offer to wholesalers in any country. My brother Jonathan worries that this will result in significantly higher drug prices in poorer countries, so maybe rather than using absolute prices, we could use pricing relative to median per capita income in each country.)

(For more details about those bullet points, see the original blog post.)

I would also add some very specific patent reform and/or tax reform: shortening the patent term and/or increasing taxes on the profits for maintenance medications/treatments, and lengthening the term/decreasing taxes for cures. Right now, the incentives for medical research are to find treatments that people will have to take for the rest of their lives, rather than on finding treatments that permanently fix a medical condition. For example, I have asthma.  I have an inhaler I use twice a day that works well enough that I hardly ever have any asthma symptoms — unless I forget to use the inhaler for a couple of days.  That medication (Symbicort, in case you’re wondering) is a long-term revenue stream for the drug company that makes it.  And I’m grateful the medication exists. But I would be better off if there were a treatment that I could take to cure my asthma so I didn’t have to keep using an inhaler twice a day.  So we should change incentives to shift medical research toward cures for conditions, rather than control or maintenance.

Part II: Government-funded Catastrophic Health Insurance Policies

There would be catastrophic health insurance for all adults, with a high annual deductible adjusted annually for inflation. A plan like this one would work, although I would suggest some variations as follows: Twenty percent co-pay on everything above the deductible (but a percentage of your copayment would be eligible for a tax credit. More on that later.) The federal government would set minimum standards for what must be offered in these catastrophic health insurance policies (CHIPs) — basically, that they must cover all reasonable and necessary medical expenses, subject to the deductible and co-pay. Insurance companies could offer more than the minimum in order to attract customers. The market for CHIPs would be nationwide and subject only to federal regulation, not state regulation.

Once a year, each insurance company would be free to set their own prices for these CHIPs, but the price of any particular policy would have to be the same for anyone who wanted to buy it. The prices would be submitted privately to the federal government by a certain deadline, after which they would be announced publicly.  Rather than set one flat fee that the federal government will pay, the government will pay for the lowest cost policy that is available to you, plus five percent. If the policy you choose is less than what the government will pay, you get to keep the difference. If it’s more, you have to pay the difference. Since many people will want to receive that cash-back bonus, and since the insurers won’t know what prices other insurers will be offering, insurers will have an incentive to offer policies that meet the minimum standards at the lowest price they can.

Nobody would be forced to purchase a CHIP, but since it would essentially be free for everyone, only an idiot wouldn’t do so. To protect idiots, we could have the government automatically purchase a plan for someone if they don’t do it themselves, unless they specifically object to having insurance.

The vast majority (over 75%) of our national health care spending is on people with chronic conditions, many of which can be prevented or alleviated through lifestyle changes.  Therefore, insurers would be allowed to offer incentives for healthy living. For example, they could offer a cash rebate to customers who don’t smoke or quit smoking during the year, or for overweight customers who lose weight, etc.

Part III: Government-funded Pediatric Care

Absent mental impairment, adults should be responsible for their own financial and health care decisions. Children, however, have neither the judgment nor the funds to make proper health care decisions, and they shouldn’t suffer because their parents’ financial situation. Therefore, using a similar system as for CHIPs above, insurance companies would offer zero-deductible, zero-copay insurance policies for children, with government standards set for what must be included. The government would pay for the lowest-cost policy available that provided care within a reasonable distance. Parents could pay extra for things like the ability to choose particular doctors, etc. The important thing is that every child would have access to care under this system even if the parents have no money.

Part IV: Emergency Care

A free market for health care can’t really work in many emergency situations. Again, drawing on the Market-Ticker.org blog post:

“All true emergency patients, defined as those who are unable by medical circumstance to choose where their treatment is to take place and require immediate medical intervention to either stabilize their condition, prevent severe permanent impairment or death … must receive the same price for the same service as a person who consents to said service.”

Part V: Health Care Tax Credits

There would be a tax credit for a percentage of your health care expenses below the deductible on your CHIP, and another tax credit for a percentage of whatever your copay expenses have been on your CHIP.  The percentages would be variable on a sliding scale based on two factors: First, the percentage eligible for a tax credit goes down the higher your income. This means richer people get less of a credit than poor people with the same health care expenses. Second, the percentage eligible for a tax credit goes up the higher your copay expenses are as a percentage of your income. This means people whose copay expenses are higher relative to their income get more of a credit than someone with the same income but lower copay expenses.  These credits are meant to maintain the personal incentive for keeping costs down, while also preventing costs from exceeding a certain percentage of your income.

Part VI: Health Care Financing

Obviously, there will be some people who won’t be able to pay their bills up front and/or can’t afford to wait until they can get their money refunded via tax credits. This can be handled by allowing anyone to get a special credit card, usable only for medical expenses, with a nominal interest rate that is the same for everyone — and the interest will be considered a medical expense when it comes to calculating tax credits.  The government will pay tax credits directly to the credit card issuer first, then any remaining tax credit would go to the taxpayer. If, after tax credits, there is still a balance on the card, the taxpayer would be responsible for paying it off. If the taxpayer did not do so in a timely manner, the credit card company could get reimbursed by the government, and the government would add that amount, plus interest and penalties, to the taxpayer’s tax bill.

Part VII: Revenue

Since this plan involves the federal government spending money and/or losing revenue (mostly through tax credits), additional revenue would be needed, and the most likely source is higher income taxes.  Since employers that currently offer health insurance to employees would no longer need to do so, some of that taxation would be offset by higher earnings. Lower health care costs would also offset some of the impact. But yes, this plan would involve a tax increase.


Okay, so that’s the basics of my plan.

Now, some of my liberal/progressive/socialist friends will say it would be simpler just to have a government-run single-payer system, getting rid of insurance and just making all health care free. And they are right, it would be simpler. But it would also mean that the government would be setting prices for medical care, resulting in distortion and perverse incentives. (That’s not to say that the current system doesn’t also distort prices and create perverse incentives, but those are things I’m trying to reduce with my plan.) My plan uses market forces to lower costs, a process that is less likely to result in shortages than government bureaucrats setting prices. My plan achieves your goal of universal coverage in a way that could be supported by many Republicans, and based on past experience you might agree that a plan with support from both parties would be best.

On the other hand, some of my conservative/libertarian friends will object to the higher taxes and increased government regulations required to implement my plan. And, from a philosophical standpoint, they are right to do so. There should always be resistance to increasing government power. However, I would argue that, as a practical matter, this plan better implements conservative and libertarian ideals than Obamacare, the current GOP legislation, or the single-payer system liberals will attempt if Republicans fail to improve the health care system in this country. I would also point out that our current health care mess is the result of FDR’s WWII-era wage controls, and that Ronald Reagan favored universal coverage, so leaving people to fend for themselves on health care is not necessarily a conservative value.

So there you have it. I remind you of the ground rules for criticizing or arguing with this post: you must have read my whole post and all of the linked articles. If your comment shows you have not done so, I reserve the right to delete it.

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One comment on “The Responsible Market-based Universal Health Care Plan”

  1. Daniel Call says:

    Interesting post–I’ve been looking forward to it since we spoke. I’m curious to see additional thoughts on the following:
    – Hospitals are usually monopolies in their local markets. How would you address that in the “transition” period from what we have today to your plan?
    – Other insurance models (auto, for example) keep pricing down by allowing the insurer to negotiate on behalf of the consumer. By having “approved” autobody shops, the insurer doesn’t get taken advantage of by the customer/provider, and the customer gets a consistent minimum level of service while maintaining the option to pay the difference and go out of network. I don’t see anything like that here, which would expose insurers to “premium” pricing once catastrophic coverage is triggered. In combination with the monopoly situation, one could imagine an ICU stay costing much more than it does today. The government would pick up the tab through the tax credits you discuss.
    – It wasn’t clear if you agree with everything at marketticker.org or just the bullets you repeat here. They seem fixated on legal status in the country; I couldn’t tell how someone unconscious from a car accident would prove they were a citizen (maybe I missed how those folks get treated vs refused immediately).
    – Many treatments have side-effects. Are you suggesting the the expected value of treating those should be priced into the initial treatment? For example, if the hospital must provide a wig for free when chemotherapy leads to hair loss, my chemo will just cost more, even if I don’t mind being bald. What about developing cancer later in life from X-ray or CAT scans? I think real life is too messy for this recommendation to work. Rather, hospital-based infections and “malpractice” situations alone could be excluded, perhaps.
    – Market-ticker also seems to suggest an extremely invasive (but indirect) level of control–live the lifestyle the government endorses or lose financial protection. As you are no doubt aware, a “health lifestyle” is redefined on a regular basis. Would religious objections be allowed? (Must Mormons drink a glass of wine a day for cardiac health?) If those could be exceptions, why not conscientious objectors? (At any rate, you didn’t repeat this one in your list, so perhaps you disagreed with it.)
    – Setting a drug price ceiling seems incongruous with a free market. Why that item? Why not cap doctors’ salaries? Hospital stays? Equivalent services exist in other countries…

    Thanks for posting–enjoyed reading. Much better than any other ideas I’m hearing!