The IRS decided that this was a tax deductible fringe benefit. From the standpoint of the covered individual, especially if his or her insurance premiums are paid by their employer or a government program, health care is virtually a free good. There is no longer a powerful rationing mechanism operating at the consumer level. True, people do not have appendectomies simply because they are virtually free. But at the margin, people do demand more health care services because they no longer have to make rationing decisions.
Patients ask for more services than they are willing to pay for.
Hospitals and doctors need to keep the revenue flowing to cover costs, including the costs of non-paying patients and, especially, patients sent to them under government programs which do not pay the full cost of the treatment provided. To counter these cost-inflating factors, insurers and governments impose their own rationing. This process is indisputably leading society toward health care overwhelmingly rationed by government, insurance companies, HMOs, and providers. The solution for this unhappy and exceedingly costly state of affairs is to restore health care rationing to informed consumers, instead of huge, bureaucratic entities, public or private. When you are paying for it yourself, you pay a lot more attention to what you are buying, and what else you could use those resources for.