1. An insurance company develops a new type of insurance plan that combines attributes of both health insurance and life insurance. Annual or monthly premiums are paid just like a life insurance policy, and the payments are invested by the insurance company in relatively safe, stable investments.
2. The U.S. government gives every taxpayer a deduction up to $5,000 per year ($5,000 per year for each family member, for those with dependents) in premiums for this "hybrid" insurance policy. This amount may increase over time as the taxpayer ages, or simply to keep up with inflation.
3. Taxpayers are free to make withdrawals from these accounts for health expenses. Maybe this is for ANY health expense, or only for major expenses requiring surgery, hospitalization, etc.
4. Any money that is left in the account when the person dies is treated as a life insurance benefit, and is passed on to a named beneficiary tax-free (as is the case now).
5. I see only two roles for the government in this: (A) changing the tax code as I've described, and (B) perhaps serving as an independent regulatory body (like a pension review board) to ensure that the investments are appropriate for the long-term solvency of the insurance pool.
Sounds like a HSA.
The reason it was so popular is because there was a nation wide wage & price freeze. The reason for that was to prevent rapid escalation (inflation) as companies competed for personnel to service war time contracts. The loophole they discovered was to offer health insurance; the IRS helped out by determining it was a non-taxable benefit. And thus the employer provided health insurance industry exploded.
Now, the first thing to consider is: who was covered? And the answer of course is employees ie the healthy, young(ish) & self-sufficient (IOW, employed). But what wasn't really thought about were the long term implications after 10, 20, 30 years of service. Like most/all things, alterations are made on the fly, so a lot of this stuff was rolled into pension plans.
Alright, so let's fast forward to today. The basic principles exist that the only people whose health can really be insured are young(ish), healthy, employed individuals, their spouses and minor children. That's it, full stop. How a tax code is structure to encourage savings, reduce costs, improve access, etc for that **specific** segment isn't really my concern.
Secondly, when we're dealing with the **uninsurable**, it's important to observe that they cannot be placed in the insurance pool with everyone else, otherwise it completely destroys the notion of "insurance" ie spreading risk based on calculated probabilities. Rather, the ill, elderly and poor are simply wards of the state.
This requires a completely different approach which has nothing to do with plans, incentives, etc. Rather, it's much more like providing for the common good like roads, defense, food regulation, etc. IOW, it becomes a bureaucratic endeavor with all the attendant, well known issues. True, service will not excel, but it will be provided. When the nation finally comes to grips with the realities of the situation, then maybe we'll finally see some kind of reform.