Hey - a quick blog pointer - I highly recommend checking out Arnold Kling's latest missive on healthcare reform.   First, the lays out the "big picture" problem that he mentally uses to justify the need for immediate, compromise solutions to head off a large problem in the Left -

Economic historian and Nobel Laureate Robert Fogel foresees a 21st-century economy in which consumers will be focused primarily on leisure, lifelong learning, and health care. To me, this suggests that there will be major ideological battles over the size of government.

While most of the Left has conceded that the goods-producing sector is better governed by free markets than by central planning, that sector's relative importance in the economy is on the decline. It is precisely those sectors where Fogel sees growth -- education, health care, and longer retirement -- where the Left insists that the government must remain in charge.

Kling advocates a policy that is far more government involved than stuff I've seen him argue about in the past.  He, like me, is generally a Libertarian but is more than willing to throw an occasional bone to pragmatism if it will defeat greater socialism down the read and appears to do this to a large extent in his healthcare proposal -

...America's health care system has many flaws. However, the solution is not to enlarge government's role. What I would like to see is a role for government in health care that is streamlined, rationalized, and bounded. I call this approach "limited paternalism."

My belief is that most consumers are capable of making the best decisions about health care most of the time. The buzzword for this is consumer-driven health care. (See also here.) However, some of the policy approaches for implementing consumer-driven health care are too wonkish for my taste.

Limited paternalism has the following components:

• Direct provision of health care services to the poor. For example, government-subsidized clinics in poor neighborhoods with nominal charges (say, $10 per visit).
• ...Mandatory catastrophic health insurance for all families not eligible for Medicaid.
• ...Institute government-provided "catastrophic reinsurance" for very high medical expenses.

I think Kling is willing to argue this because, as he noted earlier, the quasi-socialists are winning the very big picture battle here and he's willing to compromise to head off total victory.   In doing this, he grants 2 of the classic market inefficiency arguments about healthcare relative to other industries -

• At some point, we socially can NOT honor rational choice / responsibility in healthcare  -- no matter how cheap the market & the march of technology manages to make health insurance (assuming that this is the monotonic direction for this type of service... recent history certainly contradicts this), there are still situations where we as a society will NOT turn away the poor for having made bad decisions upstream.  

  I'm not saying that these individuals can not AFFORD health insurance (the typical lefty argument) but rather, for whatever, reason, they've decided to simply NOT PURCHASE it but are now sick and want expensive treatment.   The difference - as Kling notes in his blog - is related to what Hal Varian refers to as "not the choice between have / have not but rather between want / want not".    In a traditional market environment, we'd elect to leave them stranded.   Regardless of where you / I might feel about this, we must acknowledge that the vast majority of society is NOT ready for such a harshly individualistic attitude when it comes to health.   This is the bone that Kling is throwing when he advocates direct govt subsidized clinics.    (I do wish, however, that he'd spent more time investigating the role of charitable organizations here..)

• Healthcare is not a fungible good -- while most ordinary healthcare can be mapped to a price / demand curve (for ex., live with your cold, take OTC medicine or go to the emergency room), the type of healthcare which bankrupts individuals is, unfortunately, a step function.   We are generally NOT willing to accept a half-as-good surgeon for half the price nor do we believe that such a service offering really needs to exist in large scale within the market (fringe phenomena like Thai or South African surgical holidays are precisely that - fringe phenomena;  not a wholesale option for the majority of heart bypasses performed in the US today).   Hence, the market for so-called catastrophic healthcare is arguably not naturally efficient and hence Kling's advocacy of mandatory coverage purchase by consumers coupled with government reinsurance of the providers.