This past week, the National Academy of Sciences delivered a report warning of gathering trouble in American healthcare. The cost of health insurance, whose rise slowed in the 1990s as Health Maintenance Organizations spread, is now skyrocketing again--up 12% in the past year. The numbers of the uninsured are also growing again: now up to 41-million Americans. Also up is the cost of malpractice insurance, as the carnivorous American tort system imposes ever more colossal damages on errant doctors.

The National Academy is no liberal pressure group. It is as respectable as a public-policy organization can be, and it takes care to ensure that all points of view are represented on its panels. Its reports very much influence the Bush administration and portend shifts on public policy. And this report poses a special challenge for conservatives in the United States and Canada. Conservatives get some vindication from the report. It acknowledges, as conservatives have argued for years, that America's tort lawyers bear much of the blame for the increase in health-care costs--and the consequent decline in health-care coverage. Obstetricians in major American cities typically pay more than $100,000 a year for malpractice insurance. That backbreaking expense has to be covered by their fees, driving up the cost of service.

The report also dismisses grand, dramatic, fix-it-all-at-once projects like the Clinton-Care disaster of 1993-1994. And the panel members, many of them doctors, are too well informed to believe the hype about the wonders of Canadian-style medicare. When even so eager a cheerleader as Roy Romanow is reduced to praising the "spirit" of the Canadian system, we know that the system's actual practice must be pretty bad.

What the NAS recommends instead is federal assistance to a small number of states to permit them to experiment with new ways of extending insurance to all their residents, either by expanding Medicaid (the U.S. health-insurance program for the poor) or by offering tax credits to assist lower-middle-income families to buy private insurance.

Here is where the challenge for conservatives begins.

For decades, conservatives in Canada and the United States have documented the inherent defects in state-controlled medicine. Canadian-style single-payer systems neglect the preferences of patients, spend money irrationally, and under-invest in medical technology, to name just their deadliest and costliest flaws.

At the same time, though, conservatives have accepted the ethical case that everyone ought to be covered. In fact, as a practical matter, even in the United States, everybody is cov ered. The uninsured get care too: in emergency rooms, charity clinics, university hospitals and so on. The problem is that the care is delivered erratically and that it is paid for in equally erratic ways, with stealthy attempts to sneak the costs of treating the uninsured onto the bills of the paying customers.

Conservatives must find ways to reconcile their belief in universal healthcare with their opposition to state-managed healthcare. The local experiments advocated by the National Academy of Science are one good way to identify how that reconciliation can occur--especially since the NAS insists that the states that do these experiments must also curb the excesses of their tort systems. The tens of billions of dollars the Americans spend on medical litigation are all subtracted from the funds available for medical care.

Forty years ago, Jane Jacobs wrote a great book about the damage done to city life by urban renewal--meaning the bulldozing of old neighborhoods to build centrally planned housing projects and office blocks. She called urban renewal "catrastrophic reform"--catastrophic not because it was bad, though it was, but because reform came all at once, in a giant rush, wiping out everything that had existed before and replacing it all with one bureaucratic master-scheme. In the mid-1960s, Jacobs left her native New York and migrated to Toronto to find a better urban future: a city that allowed neighborhoods to evolve gradually, that accepted diversity and local scale, and that realized that different groups of people had different preferences.

Canada has achieved one great success: coverage for all. But that success was achieved in the way Jacobs warned against: by imposing a uniform, centralized system that cannot reform itself, because it destroys the local institutions from which new ideas come.

The United States, by contrast, is afflicted with one great failure--the failure to make coverage available to all. But unlike Canada, the decentralized, creative American system contains the potential for reform from within: There is room for innovation in a system where the ultimate decisions are made by local people, not a far-away bureaucracy.

Reform is coming to America. Canadians should not be too proud to learn from it. 

David Frum is a visiting fellow at AEI.