The primary means by which costs can be brought down are tort reform and removing government from the health care system as much as possible.

Of the two, tort reform is not terribly complex. No one wants to remove from citizens' hands the ability to punish negligence and be compensated for harm done, nor is it necessary to do so. Merely limiting awards to more reasonable amounts will take care of this problem. Tens of millions of dollars for pain and suffering may gratify juries looking for justice, but amounts such as this are unnecessary and are not paid by the hospitals and doctors. They are paid by you and me when these hospitals and doctors are forced to raise their rates because medical malpractice insurance just got more expensive.

Privatizing health care will be more difficult, as government has insinuated itself into the system institutionally and over time. Have you ever wondered why the primary providers of health insurance are employers? It is because back in the 1940s federal wage caps prevented employers from offering higher salaries to workers. This created a problem for employers who wanted to attract and keep good workers and top talent. They began offering health insurance as an added incentive. By the 1950s lobbying interests got the federal government to allow tax credits for employer-provided insurance. This was the beginning of government distortions of the free market in health care. Since then, numerous programs for the retired and the needy have been introduced, along with caps in the amount that the government will pay for services (which the providers must accept.) These have further distorted the market, since every person who pays less than the cost for a service raises the price that someone else must pay in order to meet the cost. The more that person uses that service, the more someone else must pay in order to provide for their health care. Since that person's health care is given to them for free or for a reduced price, they have an incentive to use that service as much as they care to without regard to their actual needs. The more they give in to this impulse, the more someone else must pay for their habit.

The last piece of government intervention which appears noble on the surface but in fact leads to higher costs are government mandates on insurance provided services. Every time a state or federal law mandates that insurance plans must include coverage for particular services then someone who is not using a service is paying for someone else who is. A twenty-three-year old recent college graduate will be paying part of the cost of an older woman's mammograms; she will also be paying part of the cost for an older man's prostate exams and colonoscopies. Perhaps she will do without health insurance at all because she cannot afford an insurance policy that provides preventative care for the middle-aged. She may be only interested in a plan that would provide catastrophic coverage and an affordable co-pay for incidental prescription drugs such as antibiotics. She might easily be able to afford such a plan, if it were available. Government mandates have priced her out of the market.

It would be politically impossible to remove all government distortions of the market at once, since the economics involved simply cannot be explained in sound bites. An immediately workable approach would be to reduce government intervention to merely providing care for the needy. In this effort, we should avoid the pitfall of applying static modeling to our thinking. The more free market forces are allowed to work in health care delivery, the more costs and prices will come under control. This alone will put more care within the reach of more people, reducing the cost of a government safety net. Once we have gotten this far it will be easier to extract government out of the system even further. Its very presence in the system will always add millions of dollars in administrative costs, both for government and for the health care industry.

The first change would be to remove government mandated coverage and any regulations that prevent insurance providers from tailoring plans to needs. This will increase competition, reduce administrative costs, and put desired coverage in easier reach of all individuals. Allow health consumers to purchase coverage from any insurance provider in any state. Increase the options available to consumers. If in fact greed is a cause for any of the high prices then competition is the solution.

Privatize Medicare. This is a system that provides coverage to the elderly that is untethered to any sort of need or means-testing. Most people on Medicare think they are using an account into which they themselves paid. Change the system so that their perception is true. Use the current funds to set up private accounts for everyone who is currently on Medicare and change the tax laws so that workers currently paying into medical care can instead divert that money to medical savings accounts. This will have two effects. First, the money will be in actual accounts that could be earning interest, thereby increasing their value and making them more likely to be self-sustaining. Second, the recipients would be taking ownership of that money. Their health care consumption will be far more prudent if Medicare is not seen as free money. Remember not to make assumptions about the health care they will be able to afford based on a static model. If costs come down, they will be more easily able to afford the care that they need. Incrementally shift the payroll tax for the current workforce so that it instead goes into a private pre-tax medical account that they own and direct, and which they can opt out of – the payroll tax portion remaining mandatory until it goes to zero. Specifically write the incremental steps of this shift into the legislation, otherwise future generations of politicians can, and will, hijack the process and end the phasing out of the payroll tax.

Shift the health care tax credit from employers to individuals. Get employers out of the health care business. The GOP is proposing a hybrid solution that will allow employers to continue to deduct the health coverage they provide to employees as a business expense. The problem with a halfway approach is that it doesn't get us to our final goal, which should be to have everyone be able to keep their health coverage regardless of their employer and regardless of their employment situation. It will also significantly reduce the problem of coverage of pre-existing conditions, since changing providers will become far less common and desired policies could be maintained for many more years. Cut the cord. This should be accompanied by any regulatory or tax changes that could make it easier for insurance companies to maintain their existing packages and customers and remove the middle layer of employers from the equation. There will be some administrative difficulties and additional costs for the first year or two, but the eventual savings in cost to all parties will be significant. Employers will no longer have to maintain the administrative costs of delivering health benefits to employers, freeing up significant labor and materials costs that could be redirected to their business activities. Money that is currently directed towards employee health benefits would now be available to offer as salary, or to hire more workers. This has been a hidden cost of labor for decades; most workers are unaware that they may be receiving, for example, $10.00 an hour in wages but the actual cost of hiring them may be $13.00 - $15.00 an hour. If part of this extra cost is instead paid as salary, then the employee now has more purchasing power. They will now have a personal tax credit, a higher salary, and a health care system that has significantly reduced administrative costs, all of which will put more and better services within their reach. They will also be able to continue the same coverage, at the same price that they have been paying, should they lose their job. This will eliminate COBRA, which is extremely expensive.

Getting employers out of the health care business will also lead, eventually, to individuals shopping around for their coverage. This will introduce competition between providers, also driving down costs and putting more services within the reach of more people. One of the best things for insurance providers to remove from the marketplace would be coverage of routine costs, such as doctor visits. Eliminating coverage for services which could be comfortably paid out-of-pocket would reduce insurance costs even further. The costs of those services would also begin to come down, as the real cost would no longer be hidden from the consumer, and unnecessary use would become less likely. This is, however, not something that government can change and would be up to insurance providers themselves to consider.

One of the largest cost burdens on the health care system in the United States is the health care provided for free to illegal aliens in our nation's emergency rooms. This cost has been estimated to run in the billions annually. Regardless of your opinion of illegal immigration in the United States, this is a cost that cannot be ignored. Many illegal aliens understand our system very well -- that they cannot be refused treatment in an emergency room -- and use emergency rooms for routine medical care. This treatment is not free; someone else must pay for it. A number of hospitals in Southern California have had to go out of business because they could no longer afford this cost burden. The remainder of the cost is borne by the health care system, which means all consumers who pay for their health care, which means you and me. Their health care is being paid in the form of higher insurance costs for people with health insurance, as well as the pain and suffering of people who cannot afford health insurance or are denied health insurance by insurance companies trying harder to contain costs. The most effective solution available would be to disallow medical care to illegal aliens in hospital emergency rooms – or at least, non-emergency medical care. This may not be acceptable to many people, in which case they need to understand the reality of this situation. There is no short-circuit to this problem; there are two choices: either forbid the use of these services by illegal aliens or force legal citizens to pay the cost of their health care, by whatever means are preferred. People may indeed choose the second of these options, but they need to understand the consequences of their choice. Either way, the first option is another means by which health care costs can be driven down.

Government has been distorting the health care market for decades, so it is not easy to explain how this has driven up costs. It is even more difficult to get people to imagine what would happen to costs once government stopped interfering in the marketplace. This is largely because most of the costs are hidden. Most people do not realize that there are increased costs placed on businesses by government regulations and by providing compensation by means other than wages. They may not fully understand that eliminating a cost in one area will free up money for use in another area; nor that this exchange may improve efficiency, thereby reducing the initial cost. The proposals above would help reduce costs and provide more health services to more people. It would be more helpful if those same people could be educated enough in economics to understand how and why this would work. Currently, however, we must be content with the fact that they would recognize the advantages once they saw them. At this time that is the best that we can hope for.