A commenter on a previous post challenged me to design a single-payer health care system. OK, here goes. We can call this the Arlo health care plan (Arlo is my analogue to Tyrone, Tyler Cowen’s evil twin).

1. I am most worried about how to set prices for medical services under a single-payer system. If we do not have a market, then there is no basis for price-setting. Accordingly, what I would create is a system of managed competition. I would design a health insurance plan and then let private insurance firms compete to offer this standard plan.

2. I would design a somewhat bare-bones health insurance plan. It would have a high deductible and a means-tested co-payment rate (is having a co-payment cheating? It’s supposed to be single payer. If single-payer means we have to do without co-payments, the plan will require a higher tax increase). It would be slow to adopt coverage for expensive new technologies. It would take a narrow view of medical care–no “alternative medicine,” no fertility treatment, mental health coverage limited to severe cases, cosmetic care limited to victims of serious birth defects and accidents, etc.

3. Private insurance companies (really, they would be more like health network organizers) would assemble networks of providers and then compete to offer coverage. So insurance company X might use a different heart specialist than insurance company Y, and the fees paid to heart specialists under the two plans might differ.

4. The government would cost out each plan based on a standard, pre-determined utilization pattern. X number of pediatric visits, Y number of heart surgeries, etc.

5. Individuals would by default be enrolled into the lowest-cost plan in their area. However, an individual could pay extra to be in a higher-cost plan. For example, if the doctor you want is in a plan that costs $500 per year higher than the lowest-cost plan, you could pay $500 a year to get into the plan that has your doctor. In addition, individuals would be free to buy supplemental health insurance and supplemental health care of their choosing.

6. Insurance companies would be paid a fee for each enrollee. However, they would not be involved in paying or processing claims. The government would do that–it is single-payer, after all. The insurance companies are just there to assemble the provider networks and to negotiate fee schedules.

7. I would try to finance this plan by cutting spending on other programs, but my guess is that it would require a huge tax increase–think of your income tax being 10 percent higher, probably more if we don’t use co-payments.

If you held a gun to my head and forced me to implement single payer, that is how I would do it. But my preferred approach to health care reform would probably be the one described in the latter part of this essay.