While collecting some interesting links on health care reform, I had an idea for a simpler way of reforming the system—a simpler way that doesn’t require a thousand pages or a complete inability to understand how markets work.

The current reform plans seem to want to expand the way the system currently works by taking all the bad parts—huge organizations deciding on health insurance without involving the actual person receiving health care—and amplifying them. Why not take the good parts and remove the bad parts? The good part is that employers are encouraged to provide health care assistance (usually as health insurance) to their employees. The bad part is that the employer is the customer that insurance companies need to please.

My suggestion for Phase 1 health care reform is to make the customer be the individual who has the insurance and who needs the health care. We can do that without upending the current system.

1. Turn employer-based health insurance into an employer-based voucher; give employers exactly the same tax breaks for providing the voucher as they get for providing insurance. Have them negotiate for insurance as normal. But at the end of the process, each employee gets a voucher for their share of the cost. They can use this voucher as cash to purchase whatever insurance and care they wish.

   The voucher must be used for health care; a minimum level of insurance for deadly emergencies will be mandated, much in the same way we have a minimum level of car insurance that we require all drivers to have. But the mandated level must be a minimum, purely for catastrophic unforeseen costs, not for general checkups or simple treatments. Employees can use their voucher for that higher level if they wish, but they must not be required to.

   Beyond that minimum level of insurance, the voucher can be used for any health care costs whatsoever. If money is left in the voucher after paying for insurance, then the rest of the voucher can go to out-of-pocket expenses.

   The voucher must be fully under the control of the employee. The employee cannot sign the rights back to their employer. Employers can still negotiate with insurance providers (and perhaps will be required to in the same way they are now initially), but they cannot force employees to use a particular provider. Each employee’s share will go to the employee and then to the insurance and/or health care of their choice.

   Current providers may well continue dealing with employers rather than employees, but the incentive now exists for other companies to cater to individual needs instead. Employees will have the option of going elsewhere. When they switch jobs they’ll be able to keep their current insurance if they wish. They’ll even be able to keep their current insurance if they choose to become self-employed. Voucher or cash, it’s all the same to the insurance company.

2. Create a simple health insurance oversight board (or piggyback on existing boards) similar to the SEC and the FDIC. Its sole purposes are:

   1. ensure that insurance providers are viable, in the same way that federal oversight ensures that banks are viable;
   2. ensure that insurance providers live up to their promises;
   3. create plain-English terms for insurance providers to use to describe their insurance; these terms will be legally binding when used;
   4. require that insurance providers use plain-English contracts, and that the plain-English version is the binding version;
   5. recommend fair lawsuit reforms so that good doctors aren’t required to get exorbitant insurance coverage on their own.

This plan shouldn’t require a thousand pages; it should require no more than a few pages to place employer health care dollars directly under the control of employees.

By increasing competition for the actual people who need health care, this system should either decrease costs or increase choices, or more likely both. And any benefits that arise from the new system will be available to anyone, not just people receiving the vouchers: to insurance companies and health care providers, the vouchers are the same as cash, and there’s no benefit to them to only accept voucher customers.

Phase 1 will not create vast new bureaucracies; nor will it upend people’s current health care (except in the sense of making it less expensive, better, or both). Whatever incentive employers have to provide health care, they’ll have the same incentive to provide health care vouchers.

If Phase 1 works, then we can look at providing health care vouchers to people who don’t currently receive them—and we will do so in a market that is geared to accept individuals. Phase 2 might well look like the food stamp program, or some other program that we know works.

If Phase 1 doesn’t work, we can go right back to the current way of doing things; all of the parts are still in place. But more likely, once a system is in place that encourages individual choice, lower prices, and personalized care, the sky’s the limit with phase 2.

Our employer-based health insurance experiment has had too many dangerous unintended side effects. The person who needs health care is no longer the customer; the amount of health insurance they get and how they can use it is decided by two organizations that don’t necessarily have their needs at heart, and don’t know them even if they do. Because health insurance providers are vying for the big plumb of employer health care, individually-tailored insurance is harder to find and more expensive.

It’s important to remember that there is no such thing as non-market economics. Everything is the market. The only question is, who is the customer and who is the seller? The seller will alter their business plan to make more money from the customer. If the customer is government bureaucrats, then that’s who the seller—in this case, the insurance industry and the health care industry—will cater to.

What we need is a system that ensures that the customer is the person who needs the health care/insurance, lets people get fully customized levels of insurance and care while retaining their employer care, and puts the market to work making insurance less expensive for people who don’t have employer care.