John Cochrane is a professor of finance at the University of Chicago and a senior fellow at the Cato Institute. The man has been described to me as "a big deal in his field of finance and macroeconomics" and "a visionary when it comes to competitive health insurance markets." And his op-ed in yesterday's Investor's Business Daily proves it. What Cochrane has published is an idea that may well save our heath care system. The fundamental insight is a simple one: "Regulations reduce competition." And we need competition. As Cochrane writes, "rigorous competition and free consumer choice are the only hope for better service, innovation and lower costs." Having thus neatly demolished the case for government-run health care, Cochrane turns his attention to the sort of free market fix that moneyed interests and Washington politicians have long colluded to prevent. He calls it "Health Status Insurance." I call it genius. The problem with health insurance as currently composed is that it's notoriously unstable. Lose your job and you lose your policy. Grow sick and your insurer will work to terminate your coverage. Cochrane's fix is so elegant that it would bring tears to the eyes of one of those stoic guards outside Buckingham Palace who don't normally cry very much. Insure your insurance. He calls it "health-status insurance" and promises that it will give consumers the "ultimate choice." It could not be simpler: Rather than just paying an insurance company to cover the cost of our medical care if we fall ill, we will pay another insurance company to cover the rise in our insurance premiums if our "health status" changes. Imagine, Cochrane says, that "a health shock causes your medical-insurance premiums to rise." In the world we live in today, you'd be priced out of the market. In Cochrane's world, your health-status insurance would produce "a lump-sum payment sufficient to pay the higher medical-insurance premiums." Problem solved. Just as health insurance protects you from changes in your health spending, insurance insurance -- sorry, health status insurance -- protects you from changes in your insurance premiums. And if health status insurance ever grows too costly or unpredictable, we can always insure that, too. The adaptability of the market is infinite. If I could clap through my computer, I would.
