RALEIGH – Health-care costs are growing rapidly. Everyone knows that. What is in dispute is why those costs are surging, who is paying them, and how to address the issue without causing other problems, be they economic or medical.

I alluded to one of the ways in Monday’s Daily Journal. Essentially, even if all the public policy parameters and incentives were wisely structured, health care costs should be increasing. Shares of gross domestic product must add up to 100 percent. As productivity and income gains reduce the share devoted to satisfying needs for goods such as food and clothing – for most people, an income gain of, say, 50 percent over a period of time does not lead to a 50 percent increase in their spending on food and clothing – other destinations for that buying power will gain in relative share. Health care is one of the most obvious stops on anyone’s journey to enhanced quality of life.

In addition, health care is simply more valuable than it was decades ago. Indeed, in many ways, health care is significantly more valuable than it was only a decade ago. New diagnostic equipment, surgical techniques, medications, devices, and therapies are coming on the market every week. Some of these innovations are medical miracles. Others offer more modest marginal benefits, yet prove attractive to those suffering from painful, debilitating, or life-threatening conditions. Thus, demand intensifies. Thus, prices rise.

Unfortunately, these are not the only factors in play, and it is reasonable to assume that much of the increased health-care spending is not efficient or efficacious. As discussed at length here, here and in my book Investor Politics, nearly a century of poor public-policy choices served to boost, distort, and disguise the cost of medical services as perceived by patients and their families. Overuse of third-party payment, either by government programs or tax-preferred health insurance obtained at the workplace, is one culprit. Another is the fiction that employers “pay” for health insurance, when in reality they sell health benefits to their employees in exchange for labor (and in lieu of cash wages).

Insurance is a product that helps individuals and organizations manage their risks. It was traditionally used as a means of defraying the cost of an expensive, unforeseen event – be it a fire, a shipwreck, or an early death. Initially, health insurance (sold by commercial life insurers) was a similar product, covering the treatment of major medical conditions and paying claims directly to individuals to reimburse catastrophic losses. Hospitals and doctors weren’t wild about a system that seemed to them to imperil the prompt and unquestioning payment of their bills. They created associations (Blue Cross and Blue Shield, respectively) to ensure a steady flow of payment under their control, increasingly for routine expenses that were neither individually expensive nor unforeseen and in a manner designed to shield patients from the ability to negotiate, or even to know about, the price of medical services.

This market-based critique of America’s health care system – that it is not sufficiently market-based, despite claims to the contrary – is rejected by advocates of single-payer programs run by governments in Canada and overseas. The benefits of such programs, they argue, include the administrative and selling costs presumably saved by eliminating competing insurers, increased access to preventive services that save money in the long run by heading off major illnesses, and the fairness of divorcing money and power from the process of accessing health care services.

The benefits are illusory, as John Goodman of the National Center for Policy Analysis explained in this Cato Institute paper published last year. Citing decades of studies and statistics, Goodman described how single-payer systems really work, or fail to work. He punctured the myth of cost savings (what happens is that dollar-dominated costs are often swapped for other kinds of costs, such as waiting times and less-successful medical interventions) and revealed that when politics influences the allocation of medical services, the results are hardly fair and unbiased by power or money.

Goodman’s work represents the second stage of treating Health Issues Confusion Courting Unwise Policy Syndrome (HICCUPS). Our next public-policy medication will address the familiar objection that Americans aren’t healthier than Europeans or Canadians despite our supposedly superior (though flawed) health-care system. It’s a classic case of simplicism, I fear.

Hood is president of the John Locke Foundation.