The truth is that health care in America is just too expensive. Everyone knows that, but not everyone is aware of what that means for the health-insurance market. In general, people think that goods and services should be allocated by markets in which people only buy things if they value them at more than their price. But the basic problem is that health care has gotten so expensive that many people who have to bear its real cost are saying they’d rather not.

That's why there was so much pent-up demand before the Obamacare exchanges launched: Many people had been declining to buy insurance on the individual market for years because they didn't think it was worth it. That's also why insurers are losing money today: Relatively healthy people don't think insurance is a good deal, but if you know that you're likely to be sick, then it becomes worth its price.

At the end of the day, who has health insurance in the U.S.? It’s people on Medicare and Medicaid, who don't pay the full cost of their coverage because the government picks up most or all of it. It’s people on employer-sponsored plans, who tend not to realize they pay the full cost because they get large (though declining) subsidies from their employers. And it’s people who buy Obamacare policies, many of whom don't pay the full cost because they get subsidies, and many of whom place a high value on insurance because they know they are sicker than average.

In other words, at current prices, the health-insurance market is a huge loss-making system. The losses exist because the total price of health insurance—premiums, cost-sharing, Medicare payroll taxes, general revenues that fund Medicare and Medicaid, etc.—exceeds the total amount that individuals would collectively be willing to spend on it. The losses are borne by the federal and state governments (and hence taxpayers); workers who don't realize that they end up paying the full cost of their policies in the form of lower wages; healthy people who either buy more coverage than they need or pay penalties for not being covered; and, in some cases, insurance companies.

Health insurers are upset about bearing part of the losses. The policy problem is that, unlike uninsured individuals, insurers don't have to bear losses if they don't want to; they can pack up their toys and go home. The obvious market-based solution is to keep increasing the penalties for not being covered until enough healthy people join the pool so insurers can make profits. But all that accomplishes is shifting more of the overall losses onto healthy people.

In this situation, there are two things that matter most. One is lowering the real price of health care, which is the only way to reduce the overall losses in the insurance system. The other is distributing the losses as fairly as possible. The simplest way to accomplish both of these goals is a universal, government-sponsored insurance program. The most effective way to control prices, used in every other developed country in the world, is to consolidate buying power. And the fairest way to distribute losses is to do so via a progressive tax system.