I attended a fascinating and boisterous town hall meeting last Wednesday night, run by Democratic congressman John Hall.   I give him credit for holding the event, albeit one announced with almost no advanced notice.   Word got out anyway, and the auditorium was truly SRO (even the aisles were filled with sitting attendees).

This meeting was much like the many other reported meetings from around the country, with emotions running high on all parts of the ideological continuum.   To be clear, the tone in the room was clearly stacked against a government takeover of health care and insurance.  I’ve personally never witnessed anything like this — thinly veiled anger at the potential power-grab of government in a way not seen for generations.     It was the democratic process in its purest form:  live, raw and messy.

But it struck me that one common theme was this:  health insurance companies are the villain to almost everyone.   Rep. Hall, who would ideally see a single-payer system, wondered aloud about why the insurance companies have not already “fixed the problems”, and because of that, declared that dramatic government action was needed instead.   It was a brilliant demonstration of just how misunderstood the current market for health insurance is, namely that there is almost no market at all.   Everything insurance companies do, right down to which ones will sell a product in a state, is heavily regulated by government.

So I left the meeting with the following thought:   Why not direct all the collective anger at the insurance companies back at them directly, by in a sense, throwing them to the lions of each other?   Remove all barriers to their free and total competition.   Let them sell any product they want, to whoever they want, at any price, anywhere in the world.   Let them beat each other up in the public arena, and may the best companies win.

Note that the companies that make the most people the happiest will do very well, and the ones that do not will go bankrupt.   However, with no governmental crutch, it will be individuals who decide what makes them happiest, whether that’s a particular kind of coverage, a particular cost structure, lifetime payment ceilings or whatever.    If at any time a company is found to be making “obscene profits”, it will attract the attention of others who will seek to steal customers by offering an equivalent product at a lower price.   In this way, health insurance inflation will be kept in check by market forces, as dictated by us, not government.

This is how nearly every other sector of our economy works.  The people dictate to companies what products they will buy and at what price.  They tell their friends about good products and service providers.   And they steer their friends away from bad ones.    It works well, and can work for health insurance, too.

Spending seven minutes with John Stossel’s recent report, “Health Care Mystery: What’ll that cost?” will be an excellent use of your time.    In his famously straightforward and commonsense-filled manner, he describes exactly what’s wrong with health care and insurance today, and what’s required to fix it — namely, Health Savings Accounts.

Better yet, he spends some time with someone who’s already reaping the benefits of HSA’s:  Whole Food’s chairman, John Mackey.    It was Mackey’s piece in the Wall Street Journal that touched off a firestorm of criticism from big-government lovers the world over — HSA’s are an existential threat to them.

Health care and health insurance are not the same thing.   Yet our increasingly contentious public debate is largely addressing these issues as if they are, and that is a chief source of problems with our resulting public policy prescriptions.

I’m going to define health “care” as all of the things we do (or should do) to take care of ourselves in a planned fashion.   Things like annual physicals, eating well, getting exercise, taking our prescription medications, and so on.   Taking personal responsibility for these things reduces the risk that we will have a physically devastating event down the road.   But to protect ourselves from financial devastation, health “insurance” is entirely appropriate.

Notice that in the case of health “care” the actions we take have (or should have) a high probability of happening.   Yet in the case of a medical catastrophe (heart attack, long term disability, etc.), we all hope that the probability of that happening is very low.

Because of the probabilities, insurance should play an important role in the latter, but has no place in the former, with one exception:  an insurer would likely be willing to lower their price if they were assured that the buyer was taking “care” of themselves – because the risk of them having to pay would be lower.   Other than that aspect, why should an insurance company be involved in what doctor I want to see, and what services they will provide to me, and what that will cost?  Why shouldn’t “care providers” be free to advertise and compete for their customers like the sellers of any other product?   And for that matter, why heavily regulate insurance companies and hamstring them from providing a whole host of products at different levels of service and pricing?

Health Savings Accounts are the answer.    Very simply, the annual money that would typically purchase a family insurance policy is split into two parts:  one part is placed into an account to be spent on “care” and the other part purchases “catastrophic insurance”.  The account holder spends money in the account with no external interference or paperwork, but sleeps well knowing that if a huge expense comes up, they are fully covered.  Most notably, they keep any unspent money that accumulates in the account.  Consumers now have every incentive to be fully informed and involved in their purchases, and health costs drop from the service provider competition that ensues.