There is a fundamental problem with creating a basically deregulated, individual-based market but having a government saftey net for those who can't get insurance in that market.

Put aside for a minute the poor who can't afford market-based insurance at average rates.

Focus on people who could afford private insurance at the rates charged an average healthy individual, but due to a health problem, would now be charged an exorbitant premium or simply not offered anything at all.

You suggest a government solution targeted at those people. The problem is that you rapidly end up with insurers dumping everyone with a chronic illness or high risk factors into that government pool and refusing to insure them. Then, all of the expensive people are in the government system, while all the the revenue is in the market system.

It's a much worse problem than it is with auto insurance, where you also typically have state run risk pools for the "uninsurable". Health care claims are far, far more predictable than the are for auto losses -- the risk difference between a healthy 25 year old and diabetic 60 year old is vastly greater than between a good driver and bad driver -- so you end up with much larger groups being uninsurable.

There's also the social/political issue that while people are ok with bad drivers ending up in extremely expensive last-resort state plans as a consequence of their own bad driving, it's tougher to argue for making people shell out exorbitant amounts to pay for the govt plan premiums because of a predisposition to breast cancer or having been injured by someone else's bad driving years ago.

If you create a free market with a government last-resort plan, everyone who isnt healthy and likely to stay that way is promptly dumped there and you both bankrupt the government system and make the private system meaningless to people with anything but acute problems. I'm surprised that someone who, unlike us "liberals", understands economics doesn't get that.

There is a role for insurance in a true sense against catastrophic but acute, non-recurring misfortunes whose incidence is basically random. For example, appendectomy or getting infected in a SARS outbreak. But most of the costs dont work that way. Most of the money goes to treating people with known chronic illnesses or at least illnesses for which there were risk factors and precurssors well in advance. Car insurance wouldn't work either if you _knew_ who would have accidents and who wouldn't.

However a health system works, either you transfer vast sums of money from the known healthy to the known sick, or you tell everyone who isn't rich that they are simply screwed if they or someone in their family ever develops a chronic illness or identifable high risk factor.

The current systems accomplishes that through employer-based group plans -- you can't throw out sick employees and only keep the healthy ones. That has pros and cons, as do other systems. I'm actually in favor of keeping as many market incentives as possible. I certainly get that there's ultimately scarcity and someone isn't going to get care they want.