(2) NON-COMPETITIVE
Holman Jenkins ---
in a March 2, 2010 editorial in the Wall Street Journal entitled "The President vs. Health-Care Reform" comments on the origins and consequences of the widespread use of group health insurance.
Origin: "the original sin was the exclusion of employer-provided health insurance from taxable income—imposed carelessly by the IRS in 1943".
Consequences: “Nobody was looking for price tags so price tags disappeared, as did any competition on price, and any clarity on price versus value”.

Donald Berrian ---
in a February 27, 2010 post on the WSJ web site tells it this way:
"The out of control growth started when some fool decided that we could save on health care costs by having companies buy health insurance for their employees with pretax dollars. At the time, health care was about 2% of GDP instead of the 17% it is now and people could afford to pay their doctors directly. The insurance acted as a "blank check" and allowed the doctors and hospitals to start ramping up their charges with no resistance from the patients or concern that they wouldn't get paid if they charged too much. Forty years later, no one can afford to pay the insurance premiums ------ "
My Comment: It may have been 4% rather than 2% and the idea of giving your employees a raise out of Uncle Sam's pocket wouldn't have seemed so foolish at the time --- but a good explanation of how we got into this mess.

Negotiation imbalance? ---
As seem in the figure to the right, U.S. healthcare costs remained below 6% of GDP until Medicare/Medicaid was enacted in 1965. Since then U.S. healthcare costs have risen to the recent 17.6 %. Presumably, prices for healthcare are determined by negotiation between the sellers, representing their own money and buyers, insurance people including Medicare/Medicaid, representing not theirs but your money. In this tug-of-war it would not be surprising to find that those representing their own funds would tug just a bit harder. If advantage to the entrepreneurs was as little as one quarter of one percent (1/4 of 1 %) at each annual negotiation, over the 45 years since 1965 the aggregate would be 11%, pretty close to cost increase that has actually occurred. Purely hypothetical but it fits the facts.

WHAT TO DO
A group of physicians who opposed the AMA support of Obamacare and organized as docs4patientcare.org created a video (c) wherein they present ideas on reigning in health care costs. Mention is made of repealing antitrust exemptions now held by health insurers, tort reform, health savings accounts and this striking comment by Dr. Debbie Dalton --"Allow doctors and hospitals to publish their fees and rankings so patients can price their health care like they do other services" (d).
This is the free market solution that should receive serious consideration.

THE TRILLION DOLLAR SOLUTION

If we could adopt something similar to the Singapore system and get our costs down to their as % of GDP, our costs would be 2.5 x 4.1/17.6 = $ 0.58 trillion and we would save over $ 1.9 trillion a year. Even if we were able to do only half as well as the Singaporians the savings would be close to a trillion dollars a year, enough to make a generous initial funding of health savings accounts, then balance the budget and start paying down the national debt. The rewards of a wise, free market overhaul of our healthcare system could be huge.

References
(a) http://www.visualeconomics.com/healthcare-costs-around-the-world_2010-03-01/
(b) http://worldfocus.org/blog/2009/01/27/singapores-health-system-saves-money-and-lives/3786/ ---- an outstanding video that really needs to be seen.
(c) http://www.youtube.com/watch?v=sjHaFcuIOLk&feature=related
(d) Quotation appears at the 2.33 minute mark.