One of the roadblocks to universal health care in the U.S. is the misguided notion that universal coverage means free coverage.

Attempts to provide free coverage are wasteful and self-defeating. Like nearly anything else, the price of care is affected by supply and demand. Free coverage adds demand for unnecessary care and drives up the overall cost beyond the ability of individuals, employers and government to pay for it.

The only way we will get to universal coverage is if everyone has a financial stake in their own health. Each person should benefit individually from prudent use of health care, and each person should pay individually for overuse.

This seems hard-hearted, especially when we are talking about the aged and children of the unemployed or poor. But in fact, policy alternatives are available that would cover all of these people, while at the same time providing them financial incentives to benefit from prudent consumption of health services.

Health savings accounts are part of the solution, but their current implementation is significantly flawed. The use-it-or-loose-it nature of the accounts causes people, especially at the end of the year, to look for ways to spend unnecessarily on health care. Since insurers often pay for 80% of this extra spending, the accounts, as currently implemented, actually drive up spending.

If individuals were allowed to withdraw the unused portions of the accounts at the end of the year without penalty, the accounts would become a powerful incentive for prudent expenditure.

So, how do we get the right type of health savings account for everyone? For people in good jobs, signing up for payroll deduction should be part of signing up for health insurance. For the working poor, the government should provide a generous match to the individual payroll contributions. For the unemployed, there should be a small increase in benefits that is paid directly into the health savings account. For the elderly, there should be an increase in Social Security that goes directly to the account. For welfare recipients, again, there would be a small increase in benefits paid directly to these accounts.

While there would be some expense to this, keep in mind that every dollar in these accounts that the individual does not spend during the year, results in a $4 savings in the nation’s overall health care bill under an 80-20 match system.

My ideas on keeping individuals financially interested in their own health care are influenced by my study of economics and a few incidents that have really stuck in my mind over the years.

--When Arizona first went to its health care system for the poor, I remember a young man who came into a drug store and wanted nearly everything in the store because his grandfather was now on the program.

--An article in the New York Times written by a doctor who had spent a fortune in Medicaid dollars saving the life of a malnourished man who would not spend $75 of his own money to fix his teeth.

--The victimization of my own grandfather, who, lying helpless in a nursing home, was set upon by a Medicare dentist who removed all his teeth, without permission, for the government money.

--Seeing a few hypochondriacs run up hundreds of thousands of medical bills for procedures they wouldn’t have considered if even a small amount of their own money was on the line.

--An article in the Wall Street Journal on the social culture of frequent visits to expensive specialists by certain Medicare recipients. Again, if some of their own money was involved, they might meet their friends elsewhere and visit the specialist only when they needed to.

I believe strongly that if health insurers and government programs only paid for procedures when an individual was willing to pay their share from their own account, then a lot of artificial demand would be removed from the health care cost equation.

So, beyond the savings account, what else would we need.

I think we should slice the need for health care coverage into these divisions:

Preventative Care: Should be paid in full by the government for all. Should include a significant educational component.

Basic Medical Insurance: Paid for by employers for most employed, subsidized for the working poor and paid for by government for the elderly, unemployed and indigent.

Major Medical Insurance: Same as basic, but paid for in full by the government for the working poor.

Catastrophic: Paid in full by the government. To make basic and major medical coverage affordable, we should cap the dollars paid by private insurance, provide government-paid preventative care and require individuals to always pay a portion of the bill from their savings accounts. The government would have options to lower its costs. e.g. Perhaps transplants would be done only at a few highly efficient hospitals, rather than supporting low-volume programs at many hospitals. Everyone would indicate on drivers license whether they are an organ donor, and that decision would be absolute. Expensive experimental treatments could be evaluated as to their worth by experts and offered only at selected hospitals.

Drug Coverage: Employer-paid for most workers, but government supported for the working poor, unemployed, poor and elderly. The government would have the option of negotiating with manufacturers to extend patents for drugs in exchange for getting pre-patent-expiration generics or low-cost drugs for the patients covered under the government pharmacy program.

Hospice: Government paid for all. Again, this would lower the cost of insurance plans.

Elective: Always entirely paid for by individual.

Long-Term Care: Universal coverage deferred to later phase.

Dependents would be covered under the plan of their parents or guardian, who would manage the health savings account for the family.

While individuals would always pay for a portion of their care, the percentages would be reduced as the cost went up.

No discussion of the health care problem would be complete without a comment on malpractice insurance costs. Patients undergoing risky procedures should buy small policies, something like the collision damage waiver available when renting a car. It would cover the first $100,000 of loss, and the patients could be experience rated so those with multiple claims would pay more. Doctors should carry their own insurance to cover from $100,000 to $1 million, with the government providing umbrella coverage beyond $1 million. Doctors would be experience rated for their premiums, and the government would stop providing umbrella coverage for doctors with multiple losses. This plan would spread the risk, lower premiums and help to remove bad doctors from practice.

Obviously, this system for providing health care coverage would require highly efficient exchanges of information. Common formats for electronic information exchange would be needed so providers, government programs, insurers, employers and individuals could keep things straight.

We can have medical coverage for all Americans, but it will only work if everyone has a significant individual stake in managing costs.