Prologue: The favorable tax treatment of employer-provided health insurance has had the very beneficial effect of motivating the rapid growth of private insurance coverage. Data from the National Health Care Expenditures Study estimated that by 1977, 883 percent of employees in the United States worked for employers that offered health insurance plans. But the cost of this tax incentive, which is most generous to employed upper-income people, has escalated by many billions during a period when the federal government has squeezed medical spending for the old and poor. These foregone tax revenues now represent the federal government's second largest health program, as the administrations 1986 spending estimates document: Medicare $73 billion; tax expenditures $24 billion; Medicaid $24 billion; veterans medical care system $9 billion; and the National Institutes of Health $5.5 billion. In this essay, Professor Alain Enthoven of the Stanford University Graduate School of Business puts forward a sharply higher...