Most Americans are covered by private insurance plans or by the government through Medicare, Medicaid, and other programs. Therefore, they have little incentive to limit their consumption or to look for less-expensive alternatives. Furthermore, because the science of medicine is complex, consumers remain relatively uninformed about health care and are heavily dependent on physicians and other providers to direct their health care purchases. The present state of the health care industry is essentially the result of market failure. Because of the industry's unique financing system, the usual market forces that bring down costs and balance supply and demand fail to operate effectively.
Health care is in oversupply.
In spite of this oversupply, the costs of health care are rising relentlessly. Although the rate of increase in medical costs slowed in 1991, it remained more than double the general inflation rate. With costs rising this fast, one might suspect the providers of health care are reaping windfall profits. In fact, the opposite is true. Plagued by high overhead, uncompensated care, operating inefficiencies, and increasing equipment and labor costs, many hospitals and clinics are facing diminished profitability.