Health-Care Plan Founded on Free Market

Odysseas Papadimitriou is founder and chief executive officer of Evolution Finance, the parent company of Wallet Blog and Card Hub, an online marketplace for credit cards.

WASHINGTON (TheStreet) -- I've criticized the Obama administration's health-care plan without offering an alternative. So here's my vision of a comprehensive, national health-care plan. It will work because it's driven by the fundamentals that shape the free-market economy.

I propose to fix the elements of our system that don't work and leave those that do. One rarely hears complaints about the quality of U.S. health care. Coverage and cost are the problems. If a health-care system is to work, it should strive to maintain today's level of quality while driving down costs and increasing coverage.

The economics of health care are shaped by consumers, who through insurance or Medicare are allowed to purchase coverage as if they had a credit card with an unlimited credit line and for which they never see a bill. There's no incentive to weigh the cost of each doctor's visit, test or procedure. Instead, Americans pay their insurance bill and go about their business without financial consideration or obligation. They're not encouraged to shop comparatively, so they don't. They don't ask questions of their doctors concerning cost, nor are they bothered when physicians request excessive tests or inflate expenses with unnecessary visits. Because of the system's design, the health-insurance market is dominated by a handful of providers, including Aetna(AET:NYSE), UnitedHealth(UNH:NYSE) and Cigna(CI:NYSE), which make decisions on rates and payments with no motivation to keep prices competitive.

A lack of competition and cost inflation are made worse by our justice system's American Rule, which drives up malpractice-insurance expesnes and forces doctors to over-treat patients to cover all contingencies and provide maximum protection against lawsuits. Of course, those costs are passed on to consumers, and the price of health care keeps rising. So the American Rule must be done away with.

It's not plausible that we take the current system and put it in the hands of the federal government. A government-run health-care system already exists in the form of Medicare, and it has all the problems of privatized health care, if not more. Perhaps it's time for a fresh and fundamentally different approach.

Under my plan, the privatized health-care system would be kept intact but would be regulated at the federal level, dramatically increasing efficiency and lowering costs. Additionally, as things stand now, there is little to no competition in health care at the national level. That is because each state has its own regulations, which make the cost of doing business high for small players. National regulations would level the playing field for insurance companies.

The purchase of health insurance from a private company would be mandatory for all legal residents, and the minimum package would include an initial $1,000 of coverage to encourage yearly preventative care. Under this minimum package, a 20% copayment would be charged once the initial allowance of $1,000 was surpassed. Mandatory health insurance for all would ensure that taxpayers are no longer offsetting citizens who aren't covered.

I would make it illegal for insurance companies to deny coverage or increase premiums based on preexisting conditions. Instead, premium prices would be based on a predetermined and federally conceived list of criterion including gender, age, county, weight and habits. But keep in mind that if you're a bungee-jumping skydiver who smokes five packs of cigarettes a day, your premium would be more than the average person's under my system.

The most unique and final feature of my health-care plan involves a government-loan program that would offer interest-free assistance to anyone forced to pay for health-care costs exceeding a portion of their income. Monthly premiums would be counted toward that out-of-pocket quota, as would employer contributions toward health insurance. For example, let's say a person making $50,000 a year was expected to pay up to 10% ($5,000) of his annual income toward an out-of-pocket quota. Under my plan, the government would step in to pay for anything over the annual out-of-pocket quota, with the understanding that the money would be paid back if and when the consumer's out-of-pocket medical expenses fell below their quota for a particular year. These zero-percent medical loans could be taken out to cover outstanding insurance co-payments or pay the initial premium of the required minimum health insurance.

Repayment of the loans would be contingent upon the consumer being below their out-of-pocket quota. To be clear, let's imagine a person making $50,000 in 2010 had to take out a loan for $10,000 in excess of his $5,000 out-of-pocket quota. Now imagine that in 2011, that same person had $1,000 in health-care costs and the same out-of-pocket quota ($5,000). In that year, he would be required to repay $4,000 of that $10,000 medical loan. In no single year would anyone have to pay more than their out-of-pocket quota.

Of course, changes in income from year to year would affect the repayment of the loan as well. If income for the year went down, so too would the amount to be repaid. Conversely, higher incomes would demand higher rates of repayment. With this system in place, everyone is assured health care, the system is secured through its backing by the federal government and, by demanding personal accountability through the proposed loan program, consumers become the engine that drives down costs for the system as a whole.

Hypothetically, we might imagine this system in action. The unemployed and destitute would be afforded health care and asked to pay back their federal loans only when they became healthy and financially stable enough to do so. People with unhealthy lifestyles would begin to amass health-care loan balances and would, therefore, be encouraged to practice healthier habits. Alternatively, those who strive toward remaining healthy and fit would draw less on government support by remaining within the limits of their private health care's coverage. In summary, those who choose to be healthy are rewarded, those who choose to be unhealthy are a burden only to themselves, and health care is available to everyone.