The best way to illustrate with real life examples how “insurance” increases the price of services, is to compare covered procedures with uncovered procedures:

Cosmetic Surgery Prices. Cosmetic surgery is one of the few types of medical care for which consumers pay almost exclusively out of pocket. Even so, the demand for cosmetic surgery has exploded in recent years. According to the American Society of Plastic Surgeons, 1.7 million cosmetic surgical procedures were performed in 2008. That is more than 40 times the number performed two decades ago (for example, 413,208 in 1992).

Despite this huge increase, cosmetic surgeons’ fees have remained relatively stable. Since 1992, medical care prices have increased an average of 98 percent. The price of physician services rose by 74 percent. [See the figure.] The increase in the price of all goods, as measured by the consumer price index (CPI), was 53 percent. Yet, an index of cosmetic surgery prices only rose only about 21 percent. Thus, while the price of medical care generally rose almost twice as fast as the CPI, the price of cosmetic surgery went up less than half as much. Put another way, while the real price of health care paid for by third parties rose, the real price of self-pay medicine fell.

As the figure shows, during downturns in the economy consumers become more price sensitive and providers respond accordingly with more competitive prices. Notice this phenomenon did not occur for medical care or physician services.

How much don’t people pay for insured activities:

For every $1 worth of hospital care consumed, the patient pays only about three cents out of pocket, on the average; 97 cents is paid by a third party.
For every $1 worth of physician services consumed, the patient pays less than 10 cents out of pocket, on the average.
For the health care system as a whole, every time patients consume $1 in services, they pay only 12 cents out of pocket.