President Barack Obama's new budget proposes to allocate $634 billion over the next decade as a down payment on national health reform. The question is: What to do with a health system that most experts agree is broken?

Harold Luft, Ph.D., director of the Palo Alto Medical Foundation Research Institute and Professor Emeritus of Health Policy and Health Economics at the University of California-San Francisco, has an idea – a carefully crafted and thought-provoking idea that he calls SecureChoice. According to Luft, the United States needs to restructure its health care system– creatively combining government's ability to pool risk and resources with the market's ability to foster innovation and change. With the support of a Robert Wood Johnson Foundation Investigator Award in Health Policy Research, Luft recently published his proposal for overhauling the system in his book, Total Cure: The Antidote to the Health Care Crisis (Harvard University Press). Luft asserts that SecureChoice addresses the fundamental flaws of the current system while leveraging its best features. "The plan I envision starts with the existing organizations, programs, laws, and self-interested behavior of stakeholders, but realigns economic incentives, thereby refocusing behaviors to achieve better care at lower cost," Luft explains. "It is compatible with employment-based contributions for coverage and with Medicare. The 'secure' part is universal coverage for major costs—hospitalization and chronic illness—and the 'choice' is in choice of providers and how care is delivered."

The ailments of the U.S. health care system are well-known. Spending is out of control: In 2006, total U.S. health spending surpassed $2 trillion, or $7,026 per person. "Absent change, we're on the road to spending 20 percent of our GDP on health care by 2016," says Luft. "In return for all that money," Luft continues, "we have a system in which 46 million Americans are uninsured, millions more are underinsured, coverage is insecure, quality of care is substandard, and coordination of care is poor."

The crux of the problem, Luft believes, is that current health care markets lack the right incentives to provide high-quality, cost-effective care for everyone, regardless of whether they’re healthy or sick.

SecureChoice aims to repair the underlying incentives so that they better reflect the principles of insurance. Under Luft's plan, health care would be separated into two components: care for expensive and generally unpredictable health problems that would be covered universally and less expensive care for more predictable problems that would be paid for out-of-pocket or by privately purchased insurance.

Universal coverage would pay for all major and emergency medical and surgical services performed in hospitals or specialized centers, as well as ongoing treatment and management of chronic care. These types of services account for about two-thirds of all health care costs. Enrollment in this coverage pool would be mandatory to ensure stability. Luft notes that voluntary insurance tends to fail because too many "healthy" people opt out.

Premiums would be based simply on a person's age and sex, with income-based subsidies ensuring affordability and eliminating costly bureaucracies for determining eligibility. Broad-based taxes, like those funding Medicare or a new value-added tax, could finance the universal pool. Alternatively, SecureChoice could use an individual mandate with existing employer contributions.