Well, it’s partly us, but not entirely. There many other, more compelling reasons why healthcare inflation tends to exceed overall inflation (which is the real issue behind costs), and they have more to do with the nature of the healthcare business – providers, that is – than with either patients or insurers. Three examples:

1) For starters, there's little of the consumer sovereignty that disciplines producers in most other markets, and there’s lot of what economists call “information asymmetries.” As consumers, most of us are generally competent to decide how much house we need or how many SUVs we want; the providers of those things simply supply our demand. But because we are not competent to decide how much healthcare we need, it’s largely the provider’s call (the doctors’, that is) as to how much we actually buy. You don’t have to be an economist to figure out what happens to demand when it’s the provider who effectively creates it.

2) Whereas technology tends to lower costs in most businesses, it raises them in healthcare. Install a robot in a car factory, and you save on labor costs. Install an MRI machine in a hospital, and you have to hire people to run it – highly trained, well-paid people, no less. The MRI no doubt reduces future medical costs (by, say, detecting serious illness early), but it’s harder to measure the costs you never incur than it is the ones you actually pay.

3) Simple demographics: As society grows older, there will obviously be more demand for health services. Why can’t supply simply rise to meet that demand, as in any other industry? It can in the long run (although you know what Keynes said about that), but in the short run there are necessarily higher “barriers to entry,” to use more econ-jargon, than in most other industries. It’s simply harder to create a doctor or a new drug than it is to create an assembly-line worker or new mp3 player, and most of us wouldn’t want it any other way.

There are lots of other non-insurance reasons for rising health costs, but suffice it to say they all stem from the life-and-death nature of healthcare, which exempts it from the supply-and-demand dynamics that rule other industries. One thing to note, however, as some comments on this page acknowledge: Americans do get more healthcare for our money than we used to. Not as much per dollar as your average Belgian, perhaps, but more than we would have for a dollar (even in inflation-adjusted terms) spent 40 years ago. The rise in healthcare costs is not entirely problematic; it’s partly a measure of how far medicine has advanced over time. Just as your HD television costs more (in real and nominal terms) than the B&W Zenith you’d have bought in 1960, so does your healthcare, and for good reason.

And so what if we’re spending more of GDP each year on healthcare and less on other things? What’s more important than your health? If we have to trade off a few videogames, vacations and SUV upgrades for more healthcare, that’s not necessarily a bad thing.

-- Chris Gay