WSJ.com - The President vs. Health-Care Reform

 

WSJ.com - Opinion: The President vs. Health-Care Reform

 

There's remarkable agreement among experts about the problem of skewed tax incentives.

Let us flip back to an epic series of Senate Finance hearings in 1992. They represented a remarkable meeting of minds across a broad swath of health-care wonks and economists that the original sin was the exclusion of employer-provided health insurance from taxable income—imposed carelessly by the IRS in 1943 so defense contractors could compete for workers without transgressing Roosevelt-era wage and price controls.

Everybody knows this turned "insurance" into something else. Call it prepaid health care, as Milton Friedman did. Call it a giant tax Laundromat for the nation's private health spending.

It became a massive subsidy to third-party payment, an incentive to channel every ache and pain through an "insurance" bureaucracy. It became an incentive for the most economically competent Americans—the secure, high-earning employees of corporate America—to overspend on health care, treating it as a free good.

What a surprise that the medical-industrial complex reorganized itself in light of this central driver. Nobody was looking for price tags so price tags disappeared, as did any competition on price, and any clarity on price versus value. Voilà.