Once upon a time in America, an employer came up with an idea for saving on payroll expenses. He noticed that many of his employees seemed uncomfortable with the idea of paying for sex, even though they wanted it. So he tried reducing worker salaries by $1000 a month, and instead he gave his workers an insurance card that they could present to prostitutes whenever the workers wanted their services. Paying for the card cost only $500 a month per worker, so the employer made higher profits.

A few years later, a major war broke out, and the government put limits on worker salaries. Employers were unable to give raises. Instead, many employers copied the idea of prostitution insurance, and the government winked, allowing employers to circumvent the salary limits.

After the war was over and salary limits were lifted, the practice of offering prostitution insurance remained widespread. In part, this was because income tax rates were now higher than they had ever been, and prostitution insurance was an untaxed fringe benefit.

Two decades after the war, a President with a compassionate agenda won a landslide re-election victory. He delivered on campaign promises to use taxpayer funds to provide prostitution insurance to the poor and to the elderly.

Both consumers and the providers of prostitution services became accustomed to using insurance cards. Paying for sex directly was frowned upon as something no decent, middle-class person would do. Instead, the first thing that would happen when a consumer visited a brothel or a prostitute was that the consumer would present his insurance card to be photocopied.

Over time, prostitution became increasingly sophisticated and expensive. Scientists and engineers developed expensive new sex toys, and highly-paid specialists grew to outnumber ordinary general prostitutes.

Nonetheless, not everyone was happy. Some consumers were not employed by companies offering prostitution insurance, nor were they eligible for government-provided prostitution insurance. Sometimes, these consumers would show up at brothels and expect free sex, with the cost shifted to other consumers.

There was a market for individual prostitution insurance, but it never really developed properly. Many consumers were willing to remain uninsured, and insurance companies saw little opportunity to profit from this small market.

The cost of employer-provided prostitution insurance continued to rise. It began to eat up a larger and larger portion of potential salary increases. Both employers and employees became troubled by this trend.

Many people began to agitate for universal, government-provided prostitution insurance, arguing that such systems were working in Canada and in many European countries. Such a single-payer system for prostitution would solve the growing problems of the uninsured and relieve the strains of employer-provided prostitution insurance. Most importantly, it would allow people to continue to be insulated from having to pay for sex.

Unfortunately, shifting the costs of prostitution insurance to taxpayers was fiscally impossible. Prosticare, the government's popular insurance program for the elderly, was projected to run into deficits of tens of trillions of dollars in another 50 years. Forestalling such a bankruptcy was going to require drastic cuts in future benefits. Trying to expand Prosticare to cover everyone would have forced such cuts to take place today, and no politician wanted to risk a confrontation with senior citizens. So although politicians talked a lot about universal single-payer prostitution coverage, they never seriously proposed enacting it.

The American public had grown accustomed to enjoying unlimited access to the services of prostitutes. They continued to be averse to paying directly for sex, and they had become increasingly insulated from having to do so. As a result, America's share of GDP going to prostitution, already the highest in the world, rose rapidly.

A few economists argued that Americans ought to try to get over their discomfort with paying for sex. The economists proposed that Americans pay for prostitution with their own money, in which case they would be less likely to obtain unnecessary services. In addition, consumers would pay more attention to cost, which would force prostitutes to lower their prices in order to avoid losing business.

Most people, particularly prostitutes, were outraged by the economist's suggestions. The idea of paying for sex was too offensive to contemplate. So the existing prostitution insurance system kept stumbling along.

Arnold Kling is the author of Crisis of Abundance: Re-thinking How We Pay for Health Care, published by the Cato Institute.

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