In Kimberley Strassel’s column, All Things, she discusses the healthcare mess with Roy Avik, who is very unsure there will be a compromise or an extension of some of these enhanced subsidies for Obamacare. They were created during COVID, and Democrats want them to be permanent. Mr. Avik is pretty sure a compromise will remain elusive.

It is intellectually possible to come up with a deal that gives Democrats some of what they want and actually achieve major strategic victories for Republicans and conservatives on healthcare reform.

Whether Republicans and Democrats get together and build that kind of legislation in time remains to be seen, but certainly I’m doing my part to brief members of Congress and help them along to the degree that they’re interested.

Kimberley Strassel recommends that readers find Mr. Avik’s piece from about a month ago in the Washington Post.

Their discussion is about more government aid for people. Health insurance bills are going up, and, as Avik notes, the reality is that healthcare is expensive.

KS wants to know how and why. Roy Avik breaks things apart:

1. There’s the cost of actual products and services like the drugs we buy and the procedures we have done and the tests that we need.

2. And then there’s separately the cost that comes from government rules, things like insurance rules and the knock-on effects on industries, say like for consolidation.

3. When you look out there and you see all this rise in healthcare insurance costs, are we seeing that because of the actual price of services and goods inflating or is it because of policy that Washington has done?

His short answer, Avik Roy says, is the latter. He continues that his long answer comes in two parts: There’s the latter part, which is Obamacare specifically, and then there’s the broader question of healthcare.

The Original Sin

Question #1: Why is healthcare so expensive in America in general?

Because it’s “the original sin of the American healthcare system.” American healthcare is more expensive than any other place in the history of civilization because of something we did right after World War II. “

During World War II, the FDR administration imposed wage controls: There was literally a schedule, a list, where if you were a barber, here’s how much you could be paid per hour. If you’re a mechanic, here’s how much you could be paid per hour.

Avik explains how the Roosevelt administration was worried that with all the young men going off to war (women weren’t yet really in the workforce), there’d be a scarcity of labor, which would lead to wage inflation and then price inflation, which would lead to an economic crisis. It said, “We’re going to artificially suppress all that.”

Loophole 

Employers quickly calculated, “Perhaps, I can’t pay that mechanic more per hour in cash wages, but I can give that mechanic health insurance. That became the loophole. It was not counted toward wage control.

The Healthcare Incentive 

Employers started offering health insurance to all their workers as a way of competing with other employers. When the war was over, and wage controls were lifted, there was a decision that the Eisenhower administration had to make as to whether health insurance, those fringe benefits, would be counted as income, subject to the income tax. The Ike administration decided not to include those “fringe benefits.” “Let’s just have wage income tax, but not health benefits.”

In the end, there was this massive tax code-driven subsidy for health insurance, where if I give you a dollar more in salary, half of that goes to the government, but in fact, I give you a dollar more in health insurance, you get a dollar of health insurance.

Seemingly, magically, over the last 80 years, what’s happened?

More and more things get covered by health insurance, and employees don’t know what’s being taken out of their paychecks. You just assume when you go to the doctor, it’s all paid for. You’re not shopping for anything, not even for the insurance. As a result, there’s this massive, massive inflation over many, many decades, explains Avik.

Don’t forget, then there are the Medicare and Medicaid systems built on top of that. So that’s the big thing that must be fixed.

If you really want to fix American healthcare, if you want to have a free market vision for what American healthcare can look like, all those things you talked about, the hospital consolidation, the high drug prices, everything else that’s going on, it all stems from that original sin of employer-based insurance.

And the way you have to fix that, says Avik, is to move more to a system in which people are shopping for their own health insurance instead of getting it from their employer or from the government.