The History of Healthcare Regulation

Obamacare did not appear out of nowhere. It was the predictable result of problems that ballooned over decades, as policymakers at both the federal and state levels repeatedly intervened in ways that distorted markets, hid real prices, and pushed costs steadily upward.

One of the earliest and most consequential shifts came during World War II. In 1943, the IRS confirmed that employer paid group health insurance premiums were not treated as taxable income for employees, helping cement employer sponsored coverage as the default way Americans got insurance.¹ This created lasting inefficiencies by tying coverage to employment rather than individual choice, reducing competition and transparency, and encouraging richer plans because workers did not directly see the true cost.¹

Those distortions grew as third party payment became the norm. When insurance companies and government programs pay most of the bill, consumers have less reason to compare prices, and providers face weaker pressure to compete on cost.² Over time, this payment structure helped normalize higher prices and higher utilization, especially when layered with regulation and administrative complexity.²

Government programs accelerated the same dynamics. Medicare and Medicaid expanded access to publicly financed care, while government payment rules often failed to keep pace with provider input costs. The widening of the gap between costs and Medicare payment rates can push clinicians to reduce Medicare participation or consolidate with hospitals to offset financial pressure.³ Consolidation can limit competition and make prices and billing more opaque for everyone else.

These pressures were not limited to federal policy. Before the Affordable Care Act, many states imposed extensive benefit mandates that required insurance plans to cover specific services and conditions. Research from the Mercatus Center has documented how state benefit mandates proliferated through political pressures and how those mandates can drive higher premiums by restricting plan design.⁴

The medical liability system also added its own cost spiral. Heritage Foundation has argued that the threat of malpractice litigation encourages defensive medicine, meaning extra tests and procedures ordered primarily to reduce legal risk rather than improve care.⁵ Federal budget analysts have similarly examined how liability rules can affect provider behavior and health spending, including through defensive practices.⁶

Finally, these cost drivers collided with a basic reality of insurance. In the pre ACA individual market, insurers in many states could medically underwrite applicants, which meant they could deny coverage, charge higher premiums, or limit benefits based on health status.⁷ ⁸ The hardships people with serious conditions faced became a political accelerant for a federal overhaul.

Rather than focusing first on unwinding the upstream distortions that made care and coverage so expensive, policymakers largely chose a different path: expanding federal control and mandates on top of an already warped system. The Affordable Care Act was sold as a fix for affordability and access, but it built on many of the very incentives that had already been driving higher costs, weaker competition, and less consumer choice.

Obamacare's architects knew they could not politically sell a fully socialized single payer system, so they built a "government directed" model that tried to control costs through thousands of pages of mandates, taxes, and centralized rules. They promised families would save about $2,500 a year as the law would "bend the cost curve" downward.¹ In practice, the law attempted to micromanage incentives that were already distorted by decades of earlier policy mistakes, and it largely treated the symptoms of runaway costs by layering on new regulation rather than restoring price discipline and patient choice.

One of the clearest examples was the so called "Cadillac Tax," a 40% excise tax aimed at high cost employer health plans.² The theory was that by penalizing "gold plated" coverage, employers and employees would shift toward leaner benefit designs, which would reduce overutilization and slow spending growth. But the tax proved politically toxic, was repeatedly delayed, and was ultimately repealed in late 2019 before it ever took effect.³ Obamacare's architects correctly identified the distortion created by unlimited tax favored employer coverage, but the law's answer was not genuine reform. It was a punitive tax that Congress could not sustain.

At the same time, the ACA dramatically expanded Medicaid, extending eligibility to adults up to 138% of the federal poverty level.⁴ To induce states to participate, the law offered an enhanced federal match for the expansion population that phased down to 90% federal funding, leaving states responsible for the remaining share.⁵ Predictably, that deal pulled the program deeper into the center of the American health system, and by late 2025 most states had adopted expansion.⁶ The political pitch was that broader coverage and preventive care would reduce expensive downstream illness. But budget analysts have long warned that expanded use of preventive services often increases, rather than decreases, total medical spending because it provides a host of services to patients who often receive no benefit from them.⁷ Meanwhile, Medicaid's scale and complexity has also produced persistent waste and documentation failures, with federal improper payment reporting continuing to show significant vulnerability in the program.⁸

Obamacare also tried to "discipline" insurers through the Medical Loss Ratio rule, the ACA's famous "80/20" requirement, which generally forces insurers to spend at least 80% of premium dollars on medical claims and quality improvement (85% in large group coverage) or pay rebates.⁹ Supporters marketed this as a consumer protection. But a percentage based cap creates perverse incentives: when the system's underlying medical prices inflate, a fixed percentage structure can allow insurer revenue and profit in dollar terms to rise with overall spending, thus encouraging gamesmanship rather than true cost control.¹⁰ Instead of sparking competition on value, the rule helped normalize a world where insurers concoct schemes surrounding medical spending flows, contracting, and complex intermediaries.

The individual mandate was another central pillar of the ACA. The provision tried to force broad participation so that healthier people would subsidize the sick and stabilize premiums. Congress later reduced the federal penalty to $0 beginning in 2019, leaving the mandate largely toothless at the national level.¹¹ Obamacare also imposed an employer mandate with detailed compliance rules, including a federal definition of "full time" work that triggers coverage obligations and penalties for large employers.¹² Unsurprisingly, this created incentives to restructure hours and benefits to avoid regulatory thresholds, and it added compliance costs that had nothing to do with patient care.

Beyond mandates, the ACA's guaranteed issue and community rating rules restricted insurers' ability to price based on health status and sharply limited permissible premium variation, with age rating capped within a 3 to 1 band in the individual and small group markets.¹³ These rules were sold as protections for people with pre-existing conditions, but they also increased the incentive for some people to wait to enroll until they need care.¹⁴ The law's "essential health benefits" requirement further forced one size fits all benefit design, including a standardized list of categories that plans must cover, which crowded out lower cost options and made catastrophic style coverage harder to offer.¹⁵

Finally, Obamacare created health insurance exchanges and then layered on heavy federal standardization for what counts as compliant coverage.¹⁶ In many areas, the combination of rules, uncertainty, and early financial losses pushed insurers to exit, narrowing consumer choice and leaving large swaths of the country with little or no meaningful competition.¹⁷ When the ACA's flaws became undeniable, Democratic health policy tacticians frequently chose a different strategy: keep the law alive through delay, waiver, reinterpretation, selective non enforcement, and other administrative rewrites that functionally altered major pieces of the 2010 statute without the accountability of reopening the law in Congress.¹⁸

Obamacare was sold as a stable way to expand coverage without exploding costs, but its architects underestimated how expensive it would be to concentrate higher risk patients into heavily regulated plans while also expanding subsidized enrollment. The result was predictable: premiums surged, plan designs became less usable for many families, and insurers were left with strong incentives to raise prices because the law's subsidy structure shields many enrollees from the true cost of premium increases.¹

When premiums rise under a normal market, consumers push back, shop, and force insurers to compete. Under Obamacare, the pricing signal is muted because premium tax credits cap what many subsidized enrollees pay, regardless of how high the full premium climbs. That design turns "affordability" into an open-ended taxpayer commitment and gives insurers more pricing power than they would have in a real consumer-driven market.¹ Over time, this becomes a feedback loop: higher premiums increase political pressure for larger subsidies, and larger subsidies reduce pressure on insurers to control premiums.¹

Washington has repeatedly responded to Obamacare's instability by expanding or extending subsidy spending instead of fixing the cost drivers created by the law's regulations. The latest example is the enhanced premium tax credits that were enacted during the pandemic era and then extended through 2025. As Congress reached the end of 2025 without extending them, the country headed into 2026 with millions facing sharply higher premiums and a renewed political scramble over whether taxpayers should keep absorbing the cost of an increasingly expensive system.³⁴ The Congressional Budget Office has also shown that making these expanded subsidies permanent would add hundreds of billions to federal deficits over the next decade, underscoring that this is not a temporary patch but a long-term fiscal trajectory.²

Even worse, the subsidy debate distracts from the basic promise that all this spending would produce better health. The United States now spends nearly $5 trillion per year on health care, yet outcomes remain deeply troubling.⁵ Life expectancy fell from 78.9 years in 2014 to 76.4 years in 2021, wiping out years of progress and raising hard questions about whether our system is delivering value for patients.⁶⁷ Throwing larger subsidies at a law that inflates premiums may reduce sticker shock for some households, but it does not solve the underlying dysfunction, and it risks further entrenching a model where insurers can raise premiums and taxpayers are expected to cover the difference.¹²

Americans are often told that "single payer" systems guarantee health care, but coverage on paper is not the same as access in real life. When governments set budgets and prices, rationing shows up in the form of waiting lists, delayed diagnoses, and postponed treatment. In the United Kingdom, the NHS elective treatment waiting list stood at about 7.30 million cases in October 2025, with roughly 170,800 cases waiting more than a year, and a median wait of 13.3 weeks to start treatment.¹ In Canada, physicians reported a median wait of 30.0 weeks from a primary care referral to receipt of treatment in 2024, the longest level recorded in that annual survey.²

During President Trump's first term, the White House and congressional Republicans made repeal of Obamacare a central priority. In 2017, the Senate's late night "skinny repeal" effort failed by a single vote. The measure was rejected 49 to 51 after Senators John McCain, Susan Collins, and Lisa Murkowski betrayed the Republican party and voted "no" alongside all Senate Democrats.³ That vote became a turning point, not because Obamacare's problems were solved, but because it underscored how entrenched the law had become and how narrow the margin was for reform.

In President Trump's second term, the fight has increasingly focused on the subsidy driven structure that rewards entrenched middlemen, especially large insurers, while families face higher premiums and fewer choices. This debate intensified as the enhanced Obamacare tax credits moved toward their scheduled expiration at the end of 2025.⁸ Trump has argued that Washington has been funneling massive sums through Obamacare in ways that protect the insurance industry, and he has pushed ideas that would shift support toward consumers rather than insurers.⁷ At the same time, House Republicans have advanced proposals that, among other things, expand alternative coverage options and add transparency requirements for pharmacy benefit managers, reflecting a broader push to expose pricing games and reduce hidden markups across the system.⁶

Trump and congressional Republicans have also framed medical innovation as a key cost and outcomes strategy, arguing that the best way to reduce suffering and long run spending is to accelerate cures and breakthrough treatments. In his 2024 nomination acceptance speech, Trump promised to "unleash the power of American innovation" and said the country would soon be "on the verge of finding the cures to cancer, Alzheimer's, and many other diseases."⁴ The 2024 Republican platform likewise made "Affordable Healthcare" a stated priority, calling for transparency, competition, and new affordable options.⁵

In a perfect world, Obamacare would be fully repealed, along with the long trail of government interventions that distorted healthcare markets, drove prices upward, and ultimately paved the way for a federal takeover model. In that world, healthcare would be governed largely by competition and consumer choice, with limited regulation focused on fraud prevention, transparency, and basic accountability.

But we do not live in a perfect world. Obamacare has been politically insulated over time, not because its underlying design suddenly started working, but because Democrats have gotten very good at masking its failures and shifting the debate away from costs, access, and quality. The law has been layered with subsidies, mandates, and administrative workarounds that paper over price increases, while creating a growing population that depends on Washington to keep the system from collapsing.

When Republicans attempt serious reforms, Democrats rarely engage the policy details. Instead, they lean on a simple and effective message, "Republicans are taking your coverage away," and amplify headline estimates of how many people could become uninsured under various proposals. That framing dominated the 2017 repeal and replace fight, even when reforms were aimed at reversing mandates, restoring state flexibility, and reducing federal micromanagement.¹²

More recently, Democrats have also benefited from a second layer of political insulation: program integrity problems that inflate "coverage" claims on paper. A 2025 GAO investigation found that federal Marketplace enrollment controls still allowed subsidized coverage to be approved for nearly all fictitious applicants in plan years 2024 and 2025, suggesting persistent weaknesses in verification and antifraud safeguards.³ Outside analysis has also raised alarms about "phantom" or improper enrollment driven by expanded subsidies, meaning taxpayers can end up financing coverage that is never used, while the system claims success based on raw enrollment counts.⁴⁵

The result is a familiar cycle. Subsidies grow to conceal the cost spikes created by regulation, then those subsidies become politically untouchable because any rollback is portrayed as ripping healthcare away. The current debate over expiring enhanced ACA subsidies, and the sharp premium increases projected if they lapse, shows how dependent the system has become on constant federal cash infusions rather than real affordability.⁶

That is exactly why REFORM Obamacare was launched. If full repeal is not politically achievable in the near term, the next best step is disciplined triage: expose what Obamacare is really doing, strip away the most damaging provisions where possible, restore market pressure wherever it can be restored, and give lawmakers a clear menu of limited government reforms that reduce costs, expand choices, and weaken the entrenched interests that profit from the ACA's complexity.

After a century of layered federal and state interventions, plus the Affordable Care Act, health care operates nothing like a normal competitive market. The sector is routinely described as the most heavily regulated part of the economy.¹ That matters because many of the biggest cost and access problems voters feel today are not "free market failures." They are predictable distortions from law and regulation, followed by political attempts to patch the damage with still more rules.

That is why today's debate so often turns into an endless cycle: a mandate drives up prices or narrows options, then lawmakers respond with subsidies, carve outs, and new compliance schemes to hide the consequences. Over time, the system becomes harder for families to understand, harder for doctors to navigate, and easier for entrenched interests to game.

This also creates a real challenge inside the conservative movement. Well intentioned reformers sometimes reach for solutions that assume robust competition exists when it does not. When the diagnosis is wrong, the "fix" can backfire, strengthening the same cartel like dynamics the policy was meant to weaken.

Limited government does not mean pretending the playing field is level when government tilted it. In a system where Obamacare restricts plan design, standardizes benefits, and channels billions through a small number of politically protected pathways, a blanket "hands off" approach can amount to leaving crony arrangements intact. For example, Obamacare's required benefit structure in the individual and small group markets is written into federal policy, limiting flexibility and pushing people toward more expensive coverage than they might otherwise choose.² And the law's insurer risk programs were explicitly designed to shield participating insurers from losses, shifting risk toward taxpayers.³ In a landscape like that, targeted reforms can be the most limited government path available because they unwind distortions and reduce the need for permanent subsidies.

Our approach is straightforward: diagnose first, then treat with the least government necessary to restore choice and competition over time. We think in terms of triage. Not because we accept the current system as inevitable, but because the political and legal environment rarely allows a clean repeal of every bad rule at once. When policymakers misdiagnose the cause, they often prescribe something worse than the disease: higher spending, tighter controls, and more dependence.

That is why this framework focuses on the five worst symptoms of Obamacare. For each symptom, we do three things: we document the harm, explain the mechanics that produce it, and outline a limited government prescription that moves the system back toward the outcomes real markets deliver, falling prices, rising quality, and faster innovation.

A final point on principle: a healthy health care system depends on supply. In practice, that means policies that allow more care to be delivered by more providers in more settings, and that allow new treatments and business models to compete. Central planning systems tend to do the opposite. They promise universal entitlement, then ration through delays and constraints. Canada's median wait from referral to treatment has reached 30 weeks, a record high, which is one reason "coverage" is not the same as access.⁴ The goal should not be equal access to stagnation. It should be broad access to better medicine, delivered through competition, investment, and innovation.

Obamacare's architects promised the law would lower costs and improve care, but the ACA instead did the opposite, and the political response has too often been to spend more to conceal the gap between promise and reality.⁵ The work of REFORM Obamacare is about making those dynamics legible to normal Americans, identifying who benefits, and advancing reforms that put patients, not the Obamacare machinery, back in charge.