488-40-6969A – American Healthcare Chronicles

I recently started building products focused on healthcare affordability in the US. As I was ramping up on a new space, the biggest question that sparked my curiosity was: how did we get here? This question is the inspiration for this weekly series chronicling the decisions, accidents, and breakthroughs that built the US healthcare system.

In November 1945, seven months into his presidency, Harry Truman sent a message to Congress that would define the next two decades of his life.He had identified a problem the employer-sponsored system couldn’t solve. That system worked well for people who were employed. But the elderly had retired. The very poor had never had employer coverage. And the middle class had no protection against the financial devastation of serious illness.

Truman proposed a solution: a national health insurance program, funded through payroll taxes, open to all Americans. A survey taken shortly after found 59% of Americans who knew about the plan supported it.

The American Medical Association saw it differently and launched one of the most aggressive lobbying campaigns in American political history. They hired a public relations firm, used the phrase “socialized medicine,” and distributed pamphlets to doctors’ waiting rooms across the country

. They even circulated a quote attributed to Soviet leader Lenin calling socialized medicine “the keystone to the arch of the Socialist State.” This was fabricated. But the campaign worked anyway. Public support collapsed from 59% to 24% in five years. Legislators across the aisle were moved by the same fears the AMA had carefully cultivated. Truman’s plan died in Congress.

He later wrote: “I have had some bitter disappointments as President, but one that has troubled me most has been the failure to defeat organized opposition to a national compulsory health insurance program.”

Twenty years passed with the problem remaining unsolved.

By 1963, the gap was stark. While 75% of Americans under 65 had hospital insurance, only 56% of those over 65 did. One in three elderly Americans lived in poverty.

The employer-based system had a blind spot built in from the beginning. It worked for people who were working. The moment you retired, you were on your own.

The bill finally went through in1965 with support from members of both parties who had watched the gap go unfilled for two decades. But it required a critical compromise: physicians and insurers retained control over their own fees. No price controls. This was the concession that got the medical establishment to stand down.

And it quietly planted the seeds of the cost explosion that followed.

In a wonderful twist to the story, President Lyndon B Johnson chose to sign the bill at Independence, Missouri instead of the White House. He explained that he considered President Truman “the real daddy of Medicare” and handed him and his wife Bess the first two Medicare cards ever issued.

Truman was 81. His card number was 488-40-6969A. He called it “a profound personal experience.”

The impact was immediate. Before Medicare, roughly half of older Americans had no health insurance. After its launch, coverage became nearly universal. Nearly 20 million people enrolled in the first three years. Elderly poverty fell from 29% to 12% over the following two decades. Medicare’s rollout also helped enforce the Civil Rights Act, driving hospital desegregation across the country.

Medicaid, passed in the same bill, extended coverage to low-income Americans. Today it covers more than 71 million people.

Within a decade, Medicare had become one of the most fiercely defended programs in Washington — protected by legislators on both sides who had seen what it meant to the people in their districts.

But the compromise that got it passed — no price controls, physicians and insurers setting their own fees — meant the federal government had become a massive paying customer with no ability to negotiate. Medicare would pay whatever was charged.

The program that answered the question of “what happens when you leave your job?” had created a new one: What happens when costs have no ceiling?

When typing is better than talking

I’m a heavy user of voice-to-text. It’s a key part of my workflow, and it improves my productivity — but only about sixty percent of the time. Lower than I expected when I first started using it.

Here’s what I’ve realized. Voice-to-text improves the efficiency with which I get an idea down. But that’s only a gain when the bottleneck is the speed of capture. A lot of the time, the bottleneck is actually the thinking itself — and the act of typing, with its slight slowness, gives me the time to process. In those moments, voice offers no efficiency gain.

This points to something broader about any system or tool. An improvement only counts if it’s an improvement to the actual constraint.

Optimize anything else and it doesn’t really matter.

Why AI spending isn’t translating to results

There’s a lot of talk right now about companies deploying AI tools and not seeing results that map to the spend. Many reasons get cited. But I suspect the simple one at the heart of it is constraints.

The analogy comes from Eli Goldratt’s famous book “The Goal”, a pre-read in most introductory operations management classes. If you’re manufacturing a car and you figure out how to produce doors more efficiently — great. But if doors aren’t your bottleneck, it doesn’t matter. The body still needs only four doors. Making more doesn’t move the car out the door faster.

AI tools work the same way. They can genuinely optimize many parts of a workflow. But if that workflow isn’t the constraint, optimizing it changes nothing at the outcome level.

Product teams shipping more features is only valuable if features were the bottleneck — if those features unlock new markets or make a step-change improvement to customer value. If they don’t, you’ve just made the wrong thing faster.

And that’s before you factor in the change management required to actually go after the right constraints in the first place.

The fundamental principles of operations and productivity haven’t gone away. It shouldn’t surprise anyone that ignoring them produces disappointing results.

Channeling our dark sides

We all have downsides. And as humans, we share some of them across our species.

Take our tendency to understand things in relative terms. Being the richest person in a middle-class neighborhood generally makes you happier than being the poorest person in an ultra-rich one.

Or that we are naturally wired to compare, to compete, to sort ourselves into tribes where we feel a sense of superiority. Hundreds of thousands of years of evolution built that programming in.

The trick isn’t to run from these. The flip side of our worst is often our best — it’s just a question of channeling.

Take competitiveness. It can lead to all kinds of dark patterns. But channel it inward — toward being better today than yesterday, significantly better than a month ago — and it becomes a powerful engine. Channel it in ways that lift the people around you, that produce outcomes making some small improvement to the world, and it becomes something genuinely worthwhile.

The goal isn’t to attempt to eliminate our dark sides. It is to point the core driver of the dark side into some place useful.

Section 106 – American Healthcare Chronicles

I recently started building products focused on healthcare affordability in the US. As I was ramping up on a new space, the biggest question that sparked my curiosity was: how did we get here? This question is the inspiration for this weekly series chronicling the decisions, accidents, and breakthroughs that built the US healthcare system.

By 1954, employer-sponsored health insurance had been growing for over a decade. But it was built on uncertain legal ground — a patchwork of wartime exemptions, IRS rulings, and informal practice. One adverse ruling could have unraveled the whole thing.

Then Congress passed sweeping tax reform bill with one buried provision.

Section 106 of the Internal Revenue Code of 1954 was simple and deliberate: employer contributions to employee health plans were excluded from the employee’s taxable income entirely. Employers kept their deduction. Employees paid no tax on the benefit. Both sides of the transaction now had a powerful financial incentive to prefer health coverage over cash compensation.

In practice, a $500 raise cost an employee income tax on top. A $500 health plan was worth the full $500 — and the employer could deduct it too. Across every HR department, compensation managers ran the same calculation and reached the same conclusion. This wasn’t a healthcare decision, it was just math.

What made Section 106 particularly consequential was what it didn’t include: a cap. Unlike the tax treatment of life insurance, the health insurance exclusion had no ceiling. The bigger the health plan, the bigger the tax benefit. As healthcare costs rose over the following decades, the incentive to expand coverage rather than question costs grew right alongside them.

Every strength overused has a corresponding dark side. Similarly, a feature of the tax code designed to encourage coverage quietly became a structural barrier to cost scrutiny.

Interestingly, the Internal Revenue Code of 1954 passed on August 16th. Section 106 was a few sentences out of a 1,000 page bill with little debate about its implications for healthcare. It was a tax policy decision that permanently embedded a particular model of healthcare financing into the structure of American life.

Today that tax exclusion has an estimated $500 billion annual impact — making it one of the largest tax expenditures in the entire federal budget. Roughly 160 million Americans still get their coverage through this system.

A Quick Timeline to put it all in context

To put this in context, here is how the pieces came together across twelve years:

1942: FDR’s Stabilization Act freezes wages. Benefits are exempt. Employers begin competing on health coverage for the first time.

1942–1945: Henry Kaiser and Sidney Garfield scale prepaid healthcare to 200,000 shipyard workers in Richmond, California. Voluntary enrollment reaches 92.2%.

1943: The IRS rules that employer contributions to group health plans are not taxable to employees. Coverage begins growing rapidly.

1945: Kaiser opens his health plan to the public. Membership collapses from 200,000 to 11,000 as the shipyards close. The model survives.

1953: A new IRS ruling creates uncertainty, declaring some employer contributions taxable. The legal foundation of the entire employer-sponsored system wobbles.

1954: Section 106 resolves the ambiguity permanently. Employer contributions are tax-exempt, full stop.

By 1960, nearly 70% of Americans had health insurance. This was a fascinating 20 year period where a wartime workaround, scaled by an industrialist, and cemented by a tax code became the foundation of American healthcare.

The question nobody had fully answered yet: what about the other 30%? That comes next.

Quality and quantity

For the many things that matter in this life, the relationship between quality and quantity follows the same pattern.

There’s a minimum threshold of quantity that needs to be met first. Below it, there’s no point optimizing for quality.

For example, a relationship needs some baseline of time to build its strength.But beyond that threshold, the only optimization that matters is quality.

Fewer high quality experiences mean a lot more.