Why is Health Care So Expensive?

Jacob Sullum in today's Washington Times answers the questions: a) why do employers pay for our health insurance?, and b) why does health care cost so much?

Most Americans get medical coverage through their employers, which is a strange situation when you think about it. People do not expect their employers to pay for their car insurance, their life insurance or their homeowner's insurance. Why should employers pay for their health insurance?

This strange situation was created more or less by accident. During World War II, businesses competing to attract scarce workers got around wage and price controls by offering health insurance instead of higher pay. In 1943 the Internal Revenue Service decided not to count this increasingly popular fringe benefit as taxable income, a policy codified by Congress in 1954.

The seemingly free coverage makes health care more expensive for everyone. Not only are you unlikely to know or care how much your employer spends on health insurance, but the coverage may be more generous than you would choose on your own, which means you are unlikely to know or care how much particular services cost.

If you were using your own money to buy insurance, you might opt for a cheaper policy with a higher deductible, in which case you would be more conscious of things like the fee for an office visit or the difference in price between name-brand and generic drugs. Indifference to such considerations contributes to escalating health care costs.

See a previous Carpe Diem post here on the same topic.