N. GREGORY MANKIW writes on health care reform, asking the question can we afford it link here. He builds his case on a hypothetical pill that costs $150,000 a year. He doesn't really answer the question because he doesn't say how many people will require that pill. But he strongly implies that clearly we can't afford it. So we ration care. A short think piece in the Sunday paper doesn't allow him to expand and he asks a valid question until you start thinking about it.

If he had, he would need to look at why we have insurance. So long as a finite proportion of the covered require the pill and other diseases don't cost comparably high amounts, we can afford it because the premiums are sufficient. That is the point of insurance.

He also kisses off the gains from removing waste in the health system. They are conjectural at this point, but there is too much evidence. Why does that pill cost $150,000 a year? One must doubt it is because it contains a rare chemical or that its marginal cost of production is so high. Rather one comes back to monopolies, like those on patents on pills and medical devices. Then we have the issues of waste that occur because of the irrational organization of medical care. Hospitals with machines that are grossly underused because the hospital has to have them in order to advertise end up creating enormous excess capacity. Doctor services are often required when nurses or practitioners could do it at much less cost. Failure of different specialists to compare notes on the particulars of a case and find the best way forward add enormous amounts to the bill.

There is a lot more. One place to see it spelled out is a book, Money Driven Medicine; The Real Reason Health Care Costs So Much by Maggie Mahar. Have a look.