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You are absolutely right about the effect of health insurance on medical costs. Insurance inserts itself between the consumer of services (the patient) and the provider of services (the doctors, hospitals, etc.). This distorts the normal economic relationship between consumers and providers. As you say, the consumer does not care about the cost of care because someone else is paying for it. This is counter to almost every other economic transaction there is. Since the consumer doesn't care, the provider can charge whatever it wants. The only limitation is now how much the insurance company is willing to pay, which leads to numerous mechanisms to control costs, such as copayments, coinsurance, allowable amounts, preferred provider organizations, HMOs and managed care networks, etc. Elementary, my dear Watson! 🙂