The Health 401(k): A Free-Market Cure for American Healthcare
How to fix the US healthcare system with Universal Catastrophic Coverage and empowered HSAs.
As families gather around Thanksgiving tables this year, amidst the turkey and football, a familiar, unwelcome guest will likely dominate the conversation: the crushing cost of healthcare. Despite years of legislative tinkering and record-breaking government spending, the American healthcare system remains in critical condition. Lawmakers continue to propose “clever” solutions that mostly amount to shuffling money around via subsidies, yet few are willing to admit a painful truth: the Affordable Care Act (ACA) has failed to deliver on its primary promise of affordability.
We have arrived at a paradoxical destination. We spend more on healthcare per capita than any other nation, yet a growing number of Americans are unhappy with their outcomes, and many are opting to go uninsured in 2026, returning us to a pre-ACA precariousness. To fix this, we must stop patching a broken model and instead introduce a structural revolution: a government-backed safety net for the catastrophic, paired with a robust free market for the routine.
The Unintended Consequences of the ACA
To understand the solution, we must diagnose why the current intervention failed. The ACA was built on the noble intention of expanding coverage. It mandated that fully funded health policies cover a massive list of procedures to prevent bankruptcy. However, by mandating that every policy covers everything, the floor price of insurance rose for everyone.
Perhaps the most counterintuitive failure lies in the Medical Loss Ratio (MLR) rule. This regulation capped insurance profits as a percentage of premiums (forcing them to spend 80-85% of revenue on care). While intended to curb greed, it created a perverse incentive.
Consider a simplified example: If an insurer sells a policy for $1,000, their profit is capped at $150 (15%). If they want to double their profit to $300, they cannot simply become more efficient; under the MLR rule, they effectively need the premium to double to $2,000. By inflating the cost of care, they inflate the absolute dollar amount of their allowable profit. Furthermore, it drove insurers to acquire hospital systems to capture profits on the provider side—profits that were capped on the insurance side.
The result? Massive consolidation, reduced competition, and skyrocketing costs. We are now in a fiscal trap where premiums are so high that individuals cannot afford them without massive government subsidies. The government is effectively underwriting the healthcare costs of a massive percentage of the population, creating a fiscal time bomb that is unsustainable.
A New Philosophy: Safety & Choice
We need a reset. Healthcare policy should aim to achieve two distinct goals:
Security: No American should face bankruptcy due to a life-threatening emergency.
Affordability: Routine care and supplemental needs should be subject to market forces to drive down prices.
The current system tries to mash these two goals into a single, bloated insurance product. We should separate them.
Pillar 1: Universal Catastrophic & Chronic Maintenance Coverage
Instead of funding the bureaucratic maze of Medicaid, Medicare, and ACA subsidies, the government should shift its focus to a single, streamlined mandate: Universal Catastrophic Coverage.
This would be a basic right for every citizen, regardless of age, income, or location. If you are in a car accident, suffer a heart attack, or face a sudden, life-threatening crisis, you are covered. Crucially, this extends to chronic maintenance for serious conditions, ensuring that those with long-term needs are not left behind.
By consolidating this essential coverage under a unified framework, the government also gains the leverage to negotiate drug prices directly with pharmaceutical companies. Much like other nations, this monopsony power would allow the US to bring down the astronomical costs of novel drug treatments and life-saving medications, preventing price gouging while maintaining access to medical breakthroughs.
This model is far less financially taxing than the current Medicare system, which faces looming insolvency. Yet, it remains available to every senior and every citizen, regardless of their ability to pay. By stripping this coverage down to necessities—preserving life and limb—we ensure that the safety net is fiscally sustainable and truly universal.
Pillar 2: The “Health 401(k)”
With the catastrophic risk handled by the public sector, the private sector can return to what it does best: innovation and competition.
Currently, employers choose your health plan, insulating you from the actual cost of care. We should replace this with a defined-contribution model, similar to how the 401(k) replaced the pension. Employers would contribute a set percentage of an employee’s income—say, 10%—directly into a Health Savings Account (HSA).
For the unemployed or those currently on Medicaid, the government would provide minimal HSA contributions to fund their essential expenses. This ensures that even the most vulnerable are empowered to participate in the market economy rather than being relegated to a separate, often inferior, system.
The individual then controls the capital. With these tax-advantaged funds, they can choose to:
Pay for routine medical expenses out-of-pocket.
Purchase a supplemental insurance plan (similar to Medicare Advantage) that covers non-emergency needs.
Save the funds for future health needs.
The Outcome: A True Market
The power of this shift lies in price signals. When patients spend their own HSA dollars, they become consumers. They will ask, “How much does this X-ray cost?” before the procedure.
To ensure this market functions effectively, we would introduce a “Federal No Surprise Bill Act.” This legislation would require providers to disclose exact costs ahead of visits. By mandating that services be paid for ahead of delivery, we effectively eliminate the predatory practice of surprise billing later.
This demand for transparency will force providers to compete. Hospitals and clinics will have to post prices and compete on value, just like every other sector of the economy, from LASIK eye surgery to veterinary care. When providers compete for patient dollars, prices fall, and quality rises.
Proof of Concept: The Singapore Model
This is not a theoretical fantasy; it is a proven model. Singapore has successfully implemented a system based on personal responsibility and government safety nets for decades. By requiring citizens to save for their own routine healthcare (via their MediSave program) while providing a catastrophic backstop, Singapore has achieved health outcomes that are superior to the United States at a fraction of the cost.
In recent years, Singapore’s life expectancy has hovered around 84 to 86 years, significantly higher than the US average of roughly 80 years. Even more damaging to the American status quo is the cost comparison: Singapore spends roughly $4,000 per capita on healthcare annually, while the US spends nearly $14,000. They achieve better health for less than one-third of the price by correctly aligning incentives: consumers shop for value, and the safety net catches those who truly fall.
Conclusion
We are currently worse off than we were 15 years ago because we attempted to regulate our way to affordability. It backfired. By simplifying the government’s role to providing a catastrophic floor and unleashing the power of consumer choice through HSAs, we can build a system that is solvent, affordable, and humane. It is time to stop subsidizing a broken system and start building a functioning marketplace.
