The Supreme Court’s upholding of the Obamacare legislation on Thursday does not settle the healthcare question because that legislation is largely unworkable. Equally, the pre-Obamacare U.S. healthcare system was unsatisfactory in a number of ways and becoming progressively more so. Under the assumption that either in 2013 or 2017 Congress and a new Administration will sit down and try to design a more rational healthcare system, I thought it worth outlining the basics of what such a system might entail.

The Obamacare judgment itself was highly reminiscent of the Supreme Court’s trajectory in the middle 1930s, when a small conservative Court majority faced the might of FDR’s New Deal. The staunch “Four Horsemen” – Justices Pierce Butler, James McReynolds, George Sutherland and Willis Van Devanter – had together with one or other of Chief Justice Charles Evans Hughes and Justice Owen Roberts struck down the Agricultural Adjustment Act of 1933, a New York minimum wage law and the National Industrial Recovery Act of 1933, together with other New Deal legislation. Only in the Gold Clause cases of 1935, when a 5-4 majority upheld the administration’s retrospective invalidation of gold clauses in contracts, did Hughes and Roberts regrettably join with the Administration to leave the Four Horsemen isolated.

Then in November 1936 Roosevelt won re-election by a landslide majority, and in February 1937 introduced his bill to pack the Supreme Court. The following month Roberts abandoned the Four Horsemen to uphold a Washington minimum wage law, producing the “switch in time that saved nine” which was sufficient to reduce support for FDR’s court-packing bill below the minimum necessary. The Four Horsemen shortly retired or died, and by the end of 1938 the court had a solid liberal majority, which it was to retain until 1986.

This time around, even before President Obama had been re-elected, Chief Justice John Roberts appears to have found the political heat too much to bear, joining the four liberal justices to uphold the Obamacare legislation, on the narrow grounds that the “mandate” for individuals to purchase health insurance was in reality a tax, and therefore constitutional. Considerable internal evidence suggests that he had originally intended to join Justice Anthony Kennedy’s dissent, which rejected the law fairly broadly. However like his namesake in 1937, but (probably) without the justification that long-term defeat was in any case inevitable, Roberts appears to have chosen discretion over valor. The courage of the 1930s Four Horsemen in resisting a strong political tide thus remains unmatched.

It is however unlikely that the Obamacare legislation will survive in the long term. First, it controls costs by capping Medicare payments and by the Independent Payment Advisory Board restricting expensive treatments. This is likely to be as unpopular and ineffective in the United States as is the equivalent National Institute for Health and Clinical Excellence (the Orwellianly named “NICE”) in Britain. Over time, both measures will also result in the degradation of healthcare quality. Second, the system will only work effectively if the tax on not joining becomes high enough to ensure universal participation. This will cause hardship in the lower income brackets that will be highly unpopular and become a political issue. As healthcare costs continue to rise, both for the state and for participating individuals, the demand for further healthcare reform will become overwhelming.

The form that further effort will take will of course be determined primarily by the political balance at the time. However, since Obamacare bore very little relationship to the legislation proposed by President Obama as candidate in 2008, we can at least make proposals in the hope that, this time around, the best will not be ignored in favor of the good or even, in most areas, in favor of the truly lousy.

Start with the liberal demand that the impoverished should not go without health insurance. Phrasing the demand in that way itself increases costs, because it interposes a third party, an insurance company, between consumers and producers. In a free market, consumers and producers negotiate directly, thus ensuring that costs are minimized and quality maximized. Poor people have a right to healthcare, but they do not have a right to purchase that healthcare through insurance, and it makes no sense that they should.

Currently, the impoverished have two mechanisms by which healthcare is delivered to them. First, if their income is sufficiently low and they are fully documented in the U.S. bureaucracy, they have a right to Medicaid, which provides healthcare of variable quality and is paid for through taxes on the general population. Second, even if they are not fully accounted for in the state bureaucracy (for example, illegal immigrants, but also including the transient unemployed and the mentally ill) the hospitals have an obligation to provide emergency care if it is needed. In that sense therefore, few are denied healthcare altogether. However if even middle income people contract one of the ailments that requires huge amounts of spending to overcome it, they will end up with bankrupting medical bills and their life will be ruined.

The bankrupting effect of healthcare bills is exacerbated by two anomalies of the medical care payments system (apart from the excess costs of medical treatment generally, which I’ll get to). First, the emergency room mandate on hospitals, imposed by legislation in 1986, is entirely without compensation to them. Naturally, the hospitals have to pay for these services from somewhere, and they do so by raising rates on other customers. Second, the big insurance companies negotiate discounts with the hospital chains, which lessen their effect by raising their nominal rates, imposing inflated charges on the unfortunates who seek treatment paid for directly, without insurance. This combination of effects results in hospitals near big cities charging $10,000 per night for use of their facilities, an outrageous amount even in areas where a top-class hotel room can run as high as $500-600. Price gouging at this level, resulting in hospital costs five or ten times the full costs of hospitals in Europe, destroys the integrity of the system and makes it impossible to deal with.

Three other areas of excess systemic cost also need to be removed. First, the litigiousness of U.S. society has led to an immense class of parasitic lawyers attaching themselves to healthcare, their costs and settlements costing about 1.5-2% of GDP. When malpractice insurance for a newly registered doctor runs well north of $100,000, doctors’ earnings need to be inflated commensurately, not only by the $100,000 directly but also by the additional cost of the early years of practice, in which a doctor may be paying the full insurance premium but not yet earning enough to cover it.

Second, the insurance and legal bureaucracy surrounding medical care has made it uneconomic in many areas for doctors to operate as sole practitioners. In consequence, large clinics have been able to take over much medical practice. The result is lower earnings for the clinic doctors and inferior care for the patients, who find there is no alternative to visiting bureaucratically managed clinics in which personal knowledge of patients is impossible. Whereas U.S. medical treatment thirty years ago was of incomparable quality, far better than available elsewhere, this is no longer the case. The belief among the general public that “doctors don’t make house calls” is valid, and is not adequately compensated for by the greater technological sophistication and lower error rate of today’s medicine.

Finally, today’s doctors are often overqualified. At an eminent heart surgeons’ conference on Chinese medicine at which I spoke two years ago, there was considerable complaint that U.S. doctors were not interested in undertaking primary care, and admiration of the Chinese system, in which primary care was readily available. “But then you have to remember” one eminent practitioner said, “that many Chinese doctors have only a bachelor’s degree.” Immediately the problem became clear. In the medical as in the legal profession (where Law school is a pre-requisite in most states, as well as a bachelor’s degree) restrictive practices have been allowed to limit access to primary care and drive up its costs.

With the burden of litigiousness lifted, insurance companies largely removed from at least primary care and restrictive practices in the medical profession itself removed, the cost of much medical treatment could be reduced, not simply by 10-20% but by more than half. Remove also the cross-subsidization to insurance companies and the indigent inherent in the payment scheme, and medical care would become truly affordable for most people.

We then come to the essential problem of healthcare, that some people are healthier than others. In the public mind currently, this is thought to demand universal health insurance. But of course it does no such thing. For the vast majority of people, the premiums they pay in insurance and the Medicare/Medicaid taxes they pay are greater than the cost of the medical services they receive – otherwise medical insurance companies would go bankrupt. Costs are further increased by nonsenses required by a nanny state, such as forcing insurance companies to cover contraception and sex change operations.

In reality, public health insurance is indeed desirable, but only for catastrophic illnesses, either chronic or critical. There is no point in involving insurance companies in this provision, which simply adds another layer of cost. Instead, catastrophic insurance could be universal and provided by the state (or, in reality, by taxpayers) – thus satisfying the dreams of the left. However, it would involve an annual deductible of say $25,000 in any calendar year. Medical costs below this level would be covered by the individual, with wages being garnisheed if necessary to reimburse medical costs below the $25,000 level.

This system would cause occasional moderate hardship, but no catastrophes (individual hardship cases could be handled by local charities.) Medical costs would mostly be paid for directly, and in any case would be sharply reduced by the reforms described above. Individuals wishing to remove even the $25,000 annual risk could still purchase insurance, which would smooth their incomes and allow them to plan properly.

And overall, medical costs would be reduced from their current 17% of GDP to around the 10% of GDP that prevents the sector from bankrupting the economy. As in most areas it’s possible to design a decent medical and insurance system for the United States; only vested interests and political axe-grinding prevent us from doing so.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)