The raging health reform debate on the public option has sucked all the air out of the room on the central question that we should be addressing: How can we fix the insurance market failure that prevents everyone from buying affordable health insurance that covers all medically necessary, otherwise unaffordable care?

The current House and Senate health reform bills try to accomplish something like this by creating an insurance exchange that allows the uninsured to buy coverage (and by expanding Medicaid). But they do nothing to correct the overwhelmingly dominant employer- and government-based programs that constitute the real looming train wreck.

In theory, an exchange or similar mechanism that allows universal insurance access is not just a good idea, but an essential one. But it must be open to everyone, regardless of employment status or eligibility for government coverage. Properly structured, it can be the critical component for achieving an effective, sustainable health insurance and medical care delivery system.  Neither of the shortsighted, overreaching congressional bills will yield this result.

But rather than just criticize the bills, I’d like to suggest Ten Commandments for creating a workable health insurance exchange.

1. Thou shalt allow universal exchange access to all American residents.

Employer- and government-sponsored insurance programs have utterly failed to control costs, assure quality, or provide portable coverage. All such “defined benefit” programs must convert to “defined contribution” plans by transitioning out of the insurance business and giving the money directly to their constituents to buy their own exchange-offered individual insurance and medical care.

2. Thou shalt provide necessary financial assistance to legal, low-income residents.

Restricted, sliding-scale, means-tested aid will accomplish what Medicaid, SCHIP, and even Medicare haven’t: provide non-stigmatized access to mainstream insurance and medical providers on the same basis as everyone else—without supporting aid dependency for people capable of working themselves out of poverty.

3. Thou shalt allow voluntary individual participation.

People should buy insurance because it represents good value. Mandating everyone to purchase it to prevent free riders is an unnecessary, unconscionable, and probably unconstitutional infringement on American liberty.

4. Thou shalt not allow free-riders.

Time-tested underwriting controls (e.g., limited open-enrollment periods, intra-year lockouts, lifetime late-enrollment penalties, provider insistence on payment, and individual financial responsibility) will ensure that no one will be able to parasitize the system by waiting until they’re sick to buy insurance.

5. Thou shalt not regulate medical prices.

Government CMS regulation of all non-drug medical reimbursement rates has produced a  gross misallocation of medical resources (including primary care provider shortages), an order-of-magnitude excess of billing and collection costs, and the elimination of any concept of market price or value. Freeing provider prices will engender competition, drive prices down, reduce useless utilization, encourage innovation, and improve medical quality.

6. Thou shalt have private health insurance only.

Government medical benefit programs (e.g., Medicare, Medicaid, SCHIP) are largely insolvent, having done nothing to control costs or deliver high-quality care.  A public option would do no better. Government’s appropriate roles under health reform are as (1) regulator to promulgate and enforce market-enabling rules, and (2) financial safety-net provider for those otherwise unable to participate.

7. Thou shalt not require insurance benefits beyond medically necessary, normally unaffordable care.

Insurance must not be required to cover unnecessary or normally affordable medical care that now inflates insurance premiums, drives up medical prices, eliminates price transparency, props up non-medical providers, and promotes unnecessary care.

8. Thou shalt regulate premiums only on the basis of (1) fiscal adequacy and (2) BAGLE (i.e., enrollee Behavior, Age, Gender, Employment, and Location.

In a truly competitive insurance exchange with literally hundreds of participating insurers, there is no need for government to artificially limit premium levels, insurer profits, or medical-loss-ratios; or to subsidize insurers or require cross-insurer risk adjustments. BAGLE rating is inherently fair, simple to use, and offers strong individual incentives for healthy lifestyles and disease prevention.

9. Thou shalt have consistent, minimally necessary federal regulation of health insurance, with enforcement delegated to the states as appropriate.

We must eliminate the current 50-state Babel of conflicting insurance regulations that facilitate rent-seeking, preserve local monopolies, harm small business, and prevent efficient, interstate operations. Rules for participation by insurers and individuals must be clear and internally consistent. In fact, there is no need for a formal, overhead-laden insurance exchange mechanism like those contemplated in the bills—or currently in Massachusetts. Any state-approved insurer must have open access to the market on a file-and-use, rather than file-for-approval basis. Regulatory enforcement must focus on detecting, investigating, and appropriately dealing with those who break the rules, not on applying prior constraints that limit appropriate market behavior.

10. Thou shalt level the playing field on taxes.

Health reform must end the unequal tax treatment between people now having employer coverage and those with individual coverage.

Together, these 10 Commandments enable vibrant health insurance and medical care markets to thrive and to deliver an explosion of insurer and provider competition, halved costs, doubled quality, sustainable safety nets, and the liberation of America’s consumers to buy their health insurance and medical care on the same basis as they buy everything else.

None of these commandments are optional in maximizing affordability and achieving these benefits. And none are respected by either the House or Senate health reform bills.