WE ALL KNOW WHERE WE'RE HEADED:

Fortunately, there is solution at hand, one with an impeccable conservative pedigree. That solution is universal catastrophic coverage (UCC), which would protect newborns with heart defects, adults with cancer, and everyone else with catastrophic medical bills, while preserving the advantages of market-based solutions for routine health care expenses.

Universal catastrophic coverage was proposed as long ago as 1971 by Martin Feldstein, the Harvard economist who would go on to serve as Ronald Reagan's chief economic adviser. In 2004, Milton Friedman endorsed UCC in a piece that he wrote as a Fellow at the Hoover Institution. An up-to-date version, specifically designed to address the problems of the ACA, is outlined by Kip Hagopian and Dana Goldman in National Affairs.

Under the Hagopian-Goldman version of UCC, all people not eligible for Medicaid or Medicare would receive a uniform high-deductible health insurance policy from a private company, subject to federal guidelines. The level of the deductible would vary according to the "surplus income" of each household, defined as the difference between actual income in the preceding year (or averaged over a few years) and the threshold income for Medicaid in the state of residence. The deductible would be set at 10 percent of surplus income for each individual, with a maximum of 20 percent for the combined costs of all members of the household.

Suppose, for example, that the Medicaid threshold for a family of three in a certain state is $30,000. If their household income is $35,000, they would be responsible for the first $500 of each family member's health care costs, or $1,000, at most, for the family. If household income was $85,000, the deductible would be $5,000 per individual. If Household income were $1 million, the deductible would be $96,500.

Nothing would prevent families from purchasing supplemental insurance for expenses not covered by their UCC policies, just as many people on Medicare now buy supplemental insurance. The premiums, however, would be radically lower than those for policies now sold on ACA exchanges, because UCC would cap maximum claims. Supplemental policies that themselves had small deductibles or co-pays would be even more affordable. Supplemental premiums would, of course, vary with the level of a family's UCC deductible, so they would be higher for higher-income families.

Presumably, many middle-class families with moderate UCC deductibles would choose not to buy supplemental insurance. After all, as Hagopian and Goldman point out, people do not buy insurance to cover oil changes or the cost of painting their houses. Health savings accounts would make it easier for families without supplemental insurance to manage routine medical expenses.

Together, income-related UCC deductibles, supplemental insurance (if purchased), and health savings accounts would ensure that people had enough "skin in the game" to make them wise shoppers for healthcare services, while protecting them against financial ruin in the event of serious illness.

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