It evolved from a series of political, economic, and cultural accidents beginning largely around the period of World War II. As with many political redistribution schemes, once underway, the system has snowballed into the unsustainable trajectory we see today.

My goal in writing this article is to explain how we got here, describe the present situation from the physician's vantage point, and outline what must change to restore sanity to American healthcare.

Pre-WWII: A Simpler System
Before the 1930s, most medical care was inexpensive and paid out of pocket. Physicians were small, independent operators. Hospitals were community based, low-tech facilities. Insurance was rare because it wasn't needed.

A few early prepaid plans existed, including Blue Cross in the 1920s for hospital stays and Blue Shield in the 1930s for physician services. Most Americans remained uninsured because medical expenses were predictable and manageable.

WWII and the Unintended Consequences of Wage Controls
During World War II, the US government froze wages to prevent inflation and stabilize the wartime economy. Employers couldn't raise salaries to compete for workers, so they turned to fringe benefits that weren't restricted under wage controls. The biggest was employer-sponsored health insurance. This would become the defining structural feature of American healthcare.

Two major tax decisions locked this model in place. In 1943, the IRS ruled that employer-provided health benefits were not taxable income to employees. In 1954, Congress codified the rule permanently. It became cheaper for employers to provide insurance than to raise wages, and employees had every incentive to get coverage through work. This single tax exemption remains the largest tax expenditure in US history. By the 1960s, most working Americans received health coverage through their employer.

Postwar Medicine: Better, Longer, and More Expensive

After WWII, medicine transformed. New antibiotics, ICUs, complex surgeries, advanced imaging, and longer life expectancy made healthcare far more effective and much more expensive. As costs rose, insurance became essential.

But, because insurance was tied to employment, large groups were left out: the elderly, the unemployed, those in unstable jobs, and low income populations. To patch these gaps, policymakers created Medicare for seniors and Medicaid for low-income individuals. These programs filled critical holes but created a fragmented system with multiple payers operating under different rules.

Insurance was never intended to function as a prepaid debit card for routine care. It was designed to protect against catastrophic, unpredictable expenses. Yet, as employer-based coverage expanded and tax subsidies grew, Americans demanded richer benefits for predictable services. This eroded price sensitivity and accelerated cost inflation.