The answer to skyrocketing health insurance costs

Employers are bracing for the "biggest healthcare cost bump in a decade." This "daunting" escalation in health insurance premiums is forcing cutbacks that negatively impact patients: reduced benefits, increased deductibles, and further restrictions of pharmacy options.

In market terms, supply and demand don't balance. In fact, they seesaw: as premiums costs go up, patient services go down. In any normal market, if you spend more, you should get more.

Fiscal analysis shows that the healthcare market is beset by "microeconomic disconnection": buyers are disconnected from sellers by third parties. And those third parties follow strict federal regulations that determine supply (payments) and demand (benefits or medical care). In a free market, buyers and sellers interacting balance supply and demand.

The "market" in healthcare is a centrally controlled, command economy. As such, healthcare lacks the two essential market forces: buyers' (patients') need to economize and competition for buyers' dollars among sellers (providers). Absence of these two behavioral modifiers causes the typical problems of a command economy: shortages of goods and services, low quality, slow service, and over-spending. Venezuela and the now-defunct U.S.S.R. are good examples, and so is the U.S. healthcare system with five-month waits for an office visit; millions with no doctor at all; death-by-queue; prescribing the cheapest medication rather than the best; and in 2024, $32,065 per family healthcare spending, as well as $4.9 trillion national spending on the system (more than the entire GDP of Germany.)

To cure a patient, any patient, whether human or a failing system, one must identify and eliminate the root cause of illness. The root cause — etiology in medical terminology — of healthcare system sickness is disconnection: of buyer from seller by third parties. The logical cure is to reconnect patient with doctor, directly removing the third-party as decision-maker. Insurance can then return to its original function: management of financial risk, not medical decision-making. To achieve reconnection, we must repeal a wage freeze remaining from 1942.

Shortly after Pearl Harbor, to have an efficient wartime economy, Congress passed both price and wage freezes. To help employers recruit and retain employees, Washington allowed employers to offer health insurance as a benefit tax-free to the employer since employee wages were held constant by law. After the war ended, all wage freezes were repealed. However, tax-free status of employer payments for health insurance was preserved. In 2024, these payments averaged $28,965 per employee.

The cure for healthcare starts with what is called the Transfer. Complete the repeal of all World War II wage freezes, including the employer-supported health benefit. That "benefit" represents wages earned by the employee but paid to an insurance company. Transfer those funds from insurance payments to the employee as compensation and make those funds tax-free if expended for medical costs.

The advantage to employers is obvious. They no longer will be held hostage to ever-increasing increased cost of insurance premiums, scheduled to increase 9% next year.

The advantage of the Transfer to consumers is equally apparent. If the additional funds were placed in a new, no-limit HSA, 157 million Americans would have enough money to shop for direct-pay medical and surgical care. Furthermore, insurance companies will have to offer what healthy patients need and want: catastrophic, high-deductible health coverage. Insurance sellers will have to compete for patients' dollars rather than what they do now: compete for contracts with health plans and obey stringent federal insurance regulations.

Another advantage of the Transfer is to make much of the federal regulatory apparatus unnecessary and available for DOGE-like cuts in wasteful government spending although on a much greater scale – hundreds of billions — than the paltry $9 billion in the Rescissions Act of 2025.

The Transfer, plus a no-limit HSA, takes care of half of the country with private insurance. Other solutions are available for Medicare, Medicaid and Tricare based on the principles described above.

The answer for skyrocketing health insurance costs and other failings of U.S. healthcare is RECONNECTION.

Deane Waldman, MD, MBA, is professor emeritus of pediatrics, pathology, and decision science; former director of the Center for Healthcare Policy at the Texas Public Policy Foundation; and former director of the New Mexico Health Insurance Exchange. Follow him on X @DrDeaneW or visit deanewaldman.com. His September 2025 book is Empower PATIENTS – Two Doctors' Cure for Healthcare.

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