The United States healthcare system consistently ranks as the most expensive in the developed world. It is not expensive, as some politicians claim, because the markets have failed. It is expensive because the market has been repeatedly blocked from success. Until we are honest about this, any potential reform will only address the symptoms and ignore the disease.
The healthcare market is hampered in many ways, but the core structural problem is simple: the person receiving the care is almost never the one actually paying for it. About 90 cents of every dollar is covered by a third party: an insurer or the government.
The deal breaks the give-and-take relationship between supplier and customer that disciplines all other sectors of the economy. When someone else pays, no one compares prices and no one asks if a service is worth it. When someone else pays, there is no reason to restrict consumption. The result is predictable: opaque pricing, resistance to competition, and a lack of discipline to keep costs aligned with profits.
Therefore, this is not a debate about WHO should have coverage. It's about whether the architecture of American health care creates any live incentive for affordability.
This fiasco did not occur naturally. It was built into the tax code, specifically, the exclusion of employer-sponsored health insurance from taxable income. As Michael Cannon of the Cato Institute has documentedThe exclusion is roughly as old as the income tax itself, having its roots in early Treasury decisions that preceded modern health insurance.
In the early 1940s, wartime wage controls gave practical force to the concept. Employers competing for workers offered health benefits as a workaround, since the benefits were exempt from controls. But employer-purchased health insurance did not see robust growth until wage caps were lifted in 1953. Congress then codified the exclusion in 1954, cementing employer-based insurance as the dominant model, a consequence few anticipated at the time.
The tax break is expected to reduce income and payroll tax revenues by $487 billion this year. The consequences have been a calamity. Cannon has convinced me that this single provision is the most damaging in the entire tax code. And it's not just because of its tax cost (it's three times higher than the code's next tax break) but also because of the behavior it has shaped over eight decades.
The provision has chained workers to their employers. It has virtually eliminated consumer price sensitivity. These are suppressed wages that could have been paid in cash instead of in the form of health insurance. Together, it has systematically displaced consumer-driven direct healthcare spending that creates genuine market pressure to limit costs.
Under the ideal tax system – one that taxes income once and only once, with no loopholes, no double taxation, and no provisions that favor one activity over another – the employer insurance exclusion would not exist.
However, removing the exemption is politically difficult. So for now, the practical small step is more health savings accounts, which allow people to save money before taxes and spend it directly on medical expenses. They put patients in the role of paying customers who compare prices, question the need for certain procedures, and look for value.
the evidence suggests that people with HSA-linked plans spend less on health care and participate more in wellness programs, although it is difficult to say to what extent this reflects the plans themselves versus the characteristics of the people who choose them. What is clearer is the structural logic. When people are in charge of their own money, they ask the right questions.
Unfortunately, HSA eligibility is restricted to people enrolled in high-deductible health plans and excludes millions of Americans with other coverage who would benefit most from these exact same incentives. The “Big, Beautiful Bill” of 2025 made genuine improvements by expanding HSA contribution limits and expanding the range of qualified expenses. But the bill left the eligibility restriction intact. Another core structural flaw in our system persists.
The consumer-driven model should follow the consumer, not the regulatory category of your plan. Millions of Americans have opted out of the ACA market entirely, choosing short-term plans, health-sharing agreements, or other alternatives precisely because they want more control over their spending. An HSA regimen should reach them, too.
Expanding HSA eligibility is not just another bandage-style healthcare reform. It is a step toward a more coherent tax code. It will lower prices by allowing people to accumulate health care savings throughout their working lives. It will help reestablish a direct financial relationship between patients and providers.
That is good fiscal policy as well as good health policy.
Rugy Veronica He is a senior fellow at the Mercatus Center at George Mason University. This article was produced in collaboration with Creators Syndicate.
