*REVIEW & OUTLOOK

The debate over paying for health care was finally joined in last Friday's Presidential debate, and it only promises to get hotter. So now is a good time to step back and take a broader look at the competing visions, because we sense the U.S. is reaching something of a policy crossroads.

On its current path, Medicare alone is projected to gobble up perhaps 35% of all federal spending by 2030 (up from about 13% now). And our readers know that companies are finding it harder to afford health insurance for employees, due both to incredible but expensive innovations and especially a third-party payment system that discourages price competition.

It doesn't help that the politically easy course is to declare health care a "right" and promise everything. But the truth -- as long Canadian wait lists attest -- is that health care is a scarce good like any other and can't escape the laws of economics. As such it will be "rationed" one way or another. The only question is whether that is done through prices and individual choice, or through the brute political force of government.

Right now America spends about 45% of its health care dollars via government, mainly Medicare, Medicaid and the Veterans Administration. But the bare majority of health spending that remains in the private sector is a far cry from what a real free market might look like. That's because most Americans get their health coverage from their employers, a relic of World War II when companies got around wage and price controls by offering it as a tax-free benefit. That tax exemption -- $603 billion over the next five years, by one new estimate -- has created a system that is unsustainable.

The root of the problem is that most of us don't really have health "insurance" -- in the sense of protection against high and unexpected expenses. Rather our tax subsidized policies are most often a form of prepayment for such routine and predictable events as an annual physical. With five of every six health care dollars paid by third parties, patients have little or no incentive to make cost-conscious decisions, and neither do physicians -- especially since our out-of-control tort system places them in jeopardy of getting sued if they haven't prescribed every conceivable test. Doctors practice an estimated $50 billion worth of "defensive" medicine every year.

Small wonder, then, that the national medical bill continues to rise by double-digit percentages annually. Some of those spending increases represent real but expensive medical progress, such as the implantable defibrillator in Vice President Dick Cheney's chest. But too much of it flows from an illogical system that will drive ever more Americans into government programs unless a serious effort is made to shift course.

Which brings us to the health care visions of George W. Bush and John Kerry. Like other Democratic candidates before him, Mr. Kerry proposes an increasing role for government. He opposes, for example, even the limited market-oriented reforms in last year's Medicare bill. As for non-seniors, Mr. Kerry wants to give large new taxpayer subsidies to companies that insure their employees. Finally, he proposes moving millions more children and some of their parents onto the government rolls.

Taken individually, none of these evokes the radical surgery that was Hillarycare in 1993. But together they promise a big expansion of the role of government. Former Medicare and Congressional Budget Office economist Joe Antos estimates the cost at some $1.5 trillion over 10 years, while John Sheils at Lewin Group puts the figure at $1.25 trillion. Mr. Kerry's campaign, using a slightly different time frame and assuming all sorts of cost "savings" that the independent analysts don't, suggests a still huge price tag of $653 billion.

The surprise is that Mr. Bush is countering with a competing vision of his own. Most Republicans avoid health care, but Mr. Bush sees that the Democratic vision is headed for a win by default, and so his campaign is making a serious effort to revive market incentives in health care.

At the center of his program are the Health Savings Accounts created by last year's Medicare bill. HSAs marry real insurance (that is, coverage for high and unpredictable costs) with contributions to a savings account that can be "rolled over" from year to year. In other words, individuals, not insurance companies, "ration" most of their own health care, and young people get a chance to save tax-free for the higher medical bills that kick in later in life.

Mr. Bush is now pushing a couple of proposals to supercharge HSAs. One idea is to put individually purchased and employer provided insurance on a more equal tax footing by making insurance premiums fully tax deductible. And since a number of states regulate their insurance markets so heavily as to prevent the sale of high-deductible policies, Mr. Bush wants to take the long overdue step of creating a national market for coverage. In the Internet age especially, it is crazy to block individuals from buying insurance policies across state lines wherever they can get the best deal.

A movement from employer-based to individually owned insurance, together with a national market for it, could have a revolutionary effect. Many lives would be improved if individuals no longer needed to fear moving or switching jobs for fear of losing their insurance. And an enormous drag on the efficient allocation of resources in the overall economy would be removed.

Americans are being offered a real choice of health care visions this November. We believe Mr. Kerry's leads inevitably toward the kind of low-innovation, low-quality government systems found in Europe and Canada. Mr. Bush's, meanwhile, would make health insurance more portable and flexible, while preserving a market for the kind of medical progress promised by the deciphering of the genome. We only wish this genuine clash of ideas was getting the attention it deserves.