Introduction: Why Health Care Costs Keep Rising¹

The reason why health care costs keep rising is clear. When we enter the medical marketplace, most of the time we are spending someone else's money rather than our own. If we paid for food, clothing, housing and life's other necessities the way we pay for health care, the cost of those items also would soar.

Under most employer-provided health insurance plans, employees effectively have a company credit card allowing them to spend freely in the hospital equivalent of a shopping mall. There are plenty of experts ready to help shoppers learn what is available. The shoppers enjoy the benefits of the spending spree, and employers get the bill.

It would be a mistake to believe that employers ultimately pay this bill, however. Health insurance is a fringe benefit which substitutes for wages in the total employee compensation package. The more costly health insurance becomes, the smaller the remaining funds available for wage and salary increases. The ultimate victims of waste in the medical marketplace are employees. This is one reason why take-home pay has been relatively stagnant over the past two decades, even though total compensation has been rising.

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