Except that health care cost inflation is not a tax; furthermore, you haven't demonstrated that said inflation is the cause of market failure.
It is currently illegal for a business to offer its employees health insurance, and charge higher premiums for the obese or smokers. This in turn naturally pushes the entire premium pool higher, as the risk associated with insuring the aggregate increases every time an obese smoker is added to the policy. Which begs the question: why does a healthy worker have to pay extra for an unhealthy worker?
Now take for instance emergency room care being utilized by those who do not have health insurance, as primary physician care. Given the demand relationship in regards to health care (demand in this case has an undefined slope), even if there are serious injuries, sickness, etc..., the simple fact that the uninsured are guaranteed coverage (in ER) puts considerable cost pressures (both implicit and explicit) on the hospital. Implicit in the fact that time is a constraining factor, and sometimes mild conditions are neglected due to lack of coverage, and in turn become more serious/expensive (in regards to treatment).
But the greatest instance of market failure is exemplified in the elderly population. Most statistics show that over 2/3 of a person’s entire health care costs will be spent in their last year of life, and around 1/2 during their last month. Insurance actuaries are well aware of this. Just like pre existing conditions are too risky to insure (and rightly so), the majority of the elderly population would be required to purchase extremely expensive insurance in the absence of medicare. Again, given the relationship to demand, these high costs bare entirely on the consumer in the form of dead weight loss. How many senior citizens would be willing to pay $4,000/month on health care? Many seniors would instead go without (example of dead weight loss). Where would seniors without coverage go everytime they felt ill? My guess would be the ER.
It is only rational for a firm to deny insurance coverage to the most risky cases. Are we to expect the elderly to just deal with it? Of course not; this is why medicare was created, to internalize the externality.
This same argument can be applied to those with pre existing conditions, or for those who do not purchase health care. Yes, there are cases in which a person’s pre existing conditions would not surface, thereby increasing the liability of a potential insurer. Conversely, there are those who forego insurance who never get sick, or wind up in the ER. But when you take the aggregates, realtiy dictates that pre existing conditions destroy your ability to obtain private coverage, and the people without insurance end up costing hospitals (ER) quite a bit of money.
The solution is quite simple. Allow the market to operate where it does not fail, and that is in offering people insurance policies that are not in the highest risk category. Those who do not fit this mold, whether it is self inflicted (tobacco, McDoubles), pre existing, income based (when you lose your job you sometimes lose coverage as well) etc... to be offered a public option. Of course, insurance companies would need to obtain the right to deny anyone coverage on the basis of risk.
This in turn allows the market to function in an efficient manner. Otherwise, there will be far too much market failure to keep prices from increasing by double digits every year.
Because liberals allow them to by forcing others to subsidize their health care costs?
Even the elderly?