A three-point plan to fix health care in the U.S.

Bertolini has a seat on the frontlines of the debate. Aetna insures about 44 million Americans. But he isn’t just a technocrat. He’s also had more than his share of firsthand experiences with the medical system. His son, Eric, was diagnosed with a rare form of lymphoma in 2001. Eric survived after an epic battle but needed a kidney transplant in 2007. Bertolini stepped in as the donor. Add to that list his own severe skiing accident in 2004, which injured Bertolini’s spinal cord and left him partially disabled.

Bertolini’s family misfortunes give him rare — if unwelcome — insights into the industry. But he is taking the lessons he learned and using them to improve practices at Aetna. In order for his son to be admitted to hospice during Eric’s struggles with cancer, for instance, Bertolini recalls being required to sign documents stating he expected his son to die within six months, and agreeing not to seek services to heal his son. “I was so shaken by that,” says Bertolini. Aetna has since dropped those requirements, a standard for Medicare policyholders entering hospice. It has paid off not only in patient satisfaction but also on the bottom line. Hospice election went from 31% to 72% as more customers chose to go home over prolonged hospital stays. Adds Bertolini: “We saw almost 80% reductions in end-of-life costs.”

But that’s just the beginning. He has a simple three-point plan to heal our ailing health care system:

Eliminate fee for service: His first priority is to change the way we pay for care, which currently encourages doctors and hospitals to order as many tests and procedures as Medicare and other insurers will allow. A 2009 report from the Institute of Medicine estimates that 30% of all spending on health care is squandered. Apply that to the $2.7 trillion we spent last year, and you get $810 billion of waste. Of that, the Institute of Medicine says, 27% is due to unnecessary services. Instead of fee for service, Bertolini says, hospitals and doctors should be paid for a good outcome. “It would have to be partnered with Medicare,” he says. “That starts to get after all that inefficiency and fraud.”

Focus on the heavy users: Bertolini points out that 5% of Medicare patients are responsible for 43% of the $550 billion spent on the program — and says that trend is similar in the broader population of patients. To find big savings, you have to target where the big money is being spent, and you can do that by focusing on one disease: diabetes.

Aetna is encouraging its employees to stay healthier by offering a $300 premium reduction if they pass a test that measures vitals like waist size, glucose levels, and blood pressure. If a worker’s spouse passes the test, the employee gets another $300 incentive. (Research shows that a healthy spouse encourages good habits at home.) That and other programs have helped. Aetna’s employee health care costs fell by 7.5% last year, while the national average has been closer to a gain of 5% to 6%.

Restructure the delivery system: “Send all the hearts to the Cleveland Clinic. Send all the cancers to Memorial Sloan-Kettering,” he says, laying out a plan to develop regional centers of excellence around the country. And reward the institutions that produce better outcomes. Here’s how he describes the reimbursement system in place today: “If I build it, I get paid for it, vs. I get rewarded for making this person better.” If the system is changed, he thinks things would improve within five to seven years, because that’s the capital structure cycle for hospitals.

Together, the steps offer a simple prescription. But the plan also attacks an entrenched establishment that profits from the existing inefficiencies. The question: Is Washington willing to swallow the medicine?

Becky Quick is an anchor on CNBC’s Squawk Box.

This story is from the December 09, 2013 issue of Fortune.