Yet government plays a smaller role in setting the rules for the U.S. healthcare system than in just about every other industrialized nation. Employers and individuals play a much larger role here. Employers can choose not to provide insurance, and some individuals either choose not to purchase it or cannot afford it—which is why about one in eight Americans lacks health insurance.

The uninsured have their healthcare paid for in three ways. The first is out of pocket. In fact, healthcare costs are the leading cause of personal bankruptcy in the United States.

The second way they pay is just by being less healthy. The final is by having the rest of us pay. The uninsured are more likely to show up in emergency rooms when things are really bad, and less likely to catch medical conditions early on. So when they do get in the system, they often generate higher costs. And those costs frequently are made up through the insurance premiums we pay and through our tax dollars.

U.S. healthcare is not particularly efficient. When our own personal dollars are added to government dollars, more is spent on healthcare in the United States than in other industrial nations. And yet we have lower life expectancy and higher infant mortality than those nations. Everyone, including President Bush, has identified this as a problem. But there is going to be little agreement in Washington on what to do about it.

That’s why we need to look to at state and local governments. Massachusetts recently passed a plan that is designed to ensure that everyone has insurance. Part of this is a legal requirement that individuals making more than a specified income will have to buy insurance, like it or not.

Another part of the plan is to tax employers who don’t provide healthcare. It sounds good in theory, but some of the details are worrisome. Much of the healthcare coverage people will get under the plan may be poor, and businesses that supply good coverage now may have an incentive to do less.

California provides two better examples. In San Francisco, Mayor Gavin Newsom has helped craft a plan that will give every city resident access to insurance. And, in an unlikely turn, Gov. Arnold Schwarzenegger also is championing a plan. It has some potential problems, but it has merits as well. Under Gov. Schwarzenegger’s plan, taxpayers will have to pick up some costs now being borne by individuals. The governor calls these payments “fees,” and he implies that they will be offset, in large part, by individuals’ savings in their out-of-pocket healthcare costs. I agree, but I think he’s talking about taxes and, in this case, that might not be so bad.

Stay tuned for my next column, in which we’ll examine the California and Massachusetts state programs in more depth.