Excelent article by Milton Friedman.
The solution, which may never be adopted by politicians is a PRA - PERSONAL RESPONSIBILITY ACCOUNT.
Require each employer withold from gross pay and direct deposit into a PRA at the financial institution designated by the employee. This is similar to the way the employee designates direct deposit of the NET pay. So then the employee could designate both halves of his gross pay... the part he sees and the part he doesn't see. Of course, it would all be clear in a simple pay stub.
Into the PRA go ALL employer expenses currently designated as FICA, Medicare, Medicaid, SSI, Food Stamps, WIC, Kidcare, ALLCare, Unemployment Comp, Workers Comp, Health Insurance, Sick Pay, 401K, 403B, IRA, etc. This would include the Health and Welfare costs currently covered by the Income tax. So the income tax (or FAIR tax) would be less than it is now.
ALL of that cost that is seldom seen by the employee is put into the PRA. The PRA is the employee's money. What he does not spend is his.... his for retirement, for paid unemployment, or whatever.
The employee would spend the money with a debit card. There would be laws as to the circumstances and purposes under which the employee could access this money. There would be laws to require "major medical" as part of the package. The employee would have to violate the rules in order to squander the money. There is no doubt that a small percentage of people will find a way to squander the money.
But the vast majority of the people will have control of their money with a very low "expense ratio". Their money will grow. Probably 80% of all people would realize better use of their money. Probably 15% would be in the same position as they are now. Probably 5% would squander the money. Why should the 80% be penalized for the immediate gratification of the 5%? Under Personal Responsibility Accounts we would see a slight improvement in lifestyle choices. Not utopia... but better than some of the stupid choices people now make.
The simple fact is that most medical costs come in two categories.
1) Keeping senior citizens alive a couple more months when they are terminal. I hate to be cold. By why should future generations not yet born be required to pay for that?
2) Lifestyle. Alcohol, drugs, overeating, bad diet, no exercise, risky behavior... these are the single largest category of health care costs. Why should Mormons or Seventh Day Adventists with a good lifestyle be required to pay for the lousy lifestyle of the rest of us.
I drink too much Mountain Dew and eat too few veggies. When I need medical care, why should the good lifestyle person pay for my immediate gratification?
In order to get it accepted politically, we would put some "seed money" in the accounts of the working poor. That "seed money" would have stricter rules on how it could be spent.
The big losers would be alcoholics and similar malingerers on SSI. They'd have to get work.
Of course, none of this would in anyway prevent any private charity from doing whatever it pleased to help (or not) those with poor lifestyle choices.