The core of American health care cost inflation is captured by Arnold Kling:
My oldest daughter is in her mid-twenties. She has a friend the same age who was stricken with cancer last year. She was treated with chemotherapy, Initially, the doctors thought this had worked, but now the cancer is back. My guess is that her prospects at this point are rather frightening.
That ends the anecdote. What follows is my imagination.
Imagine it were my daughter. What would be my attitude? I imagine that I would be walking into the oncologist saying, "Look. There has to be something you can try. I don't know whether it's bone marrow transplants or stem cells or some clinical trial somewhere. But we can't just sit here and watch her die. Either you give us something that has a chance of working, or we'll find another oncologist who will."
Next, imagine that the best hope is a treatment that costs $100,000 and offers a chance of success of 1 in 200. Would I want her to get that treatment? Absolutely.
But look at the issue from a rational, bureaucratic perspective. You have to treat 200 patients at a cost of $100,000 each in order to save one life, for a cost per life saved of $20 million. Is that what a rational bureaucracy would do?
A rational bureaucracy would not even tell the family about this treatment option. But I think that in the American culture regarding medicine, I would find out about it.
It's worth noting that, at least anecdotally, the internet means we're increasingly exporting our cost inflation to other countries. In the 1990s, breast cancer patients wouldn't even have found out about a treatment like Herceptin. Now they fight (and win) public relations battles with their governments to get their treatments covered, even when the treatment is not deemed cost-effective by the health care regulator. And the woman who fought that famous and "inspirational" battle in Britain recently died; the drug didn't buy her that much extra time, perhaps because she had to fight so long to get it.
If your mother or your daughter or your sister or your wife is dying of breast cancer, it doesn't matter to you how much the treatment costs relative to the benefit. And indeed, the political battle over health care is infused with the belief that you shouldn't have to think about cost--that it is immoral to deny anyone a treatment that might help them.
Unless we're willing to let health care expenses grow unchecked, someone is going to have to think about costs. But so far in America, I see no means to develop a culture which will allow bureaucrats to deny potentially life-saving treatments simply because they're costly--either in the free market or in a single payer system. Thus, I predict, costs will continue to grow.