Health Care Costs and Product Differentiation

The US health care cost has been increasingly going up between 1960 to date. The health care costs as of 2017 were estimated to be about 3.5 trillion US dollars making the health care industry one of the largest in the country (Amadeo, 2019). This amount is an equivalent of about 18% of the country’ GDP.  There are however two significant factors that have led to this rapid increase.

The US majorly relies on privatized health cover sponsored by a company.  Programs like medic aid and Medicare have been created by the government to assist individuals with no insurance cover (Amadeo, 2019). In relation to the supply and demand analysis, there was an overall demand for health care services. This gave the suppliers and providers of healthcare the reason to increase the prices. According to the analysis, the determination of price depends on market demand and price. This being the case, the increased demand for healthcare by patients dependant on insurance cover led to an increased health care supply. This increase in demand forced the government and suppliers to agree on a higher equilibrium price over the years as the population in need increased

An increase in chronic illnesses such as heart conditions has also contributed to the rise in health care costs. A considerable number of American citizens suffer from at least one chronic disease which is expensive to treat. Almost half of the total cost of health care is used by individuals with these illnesses (Amadeo, 2019). Healthy individuals only contribute to three percent of the total healthcare cost. The increased demand for healthcare among the sickest population results to an increased healthcare supply and in general the government has no option than to incur extra costs to treat the ill population.

In my opinion, the creation of programs aimed at assisting the ones with no insurance by the health care providers sponsored by the government is the factor that has had the most significant impact in rising healthcare costs. This is because the vulnerable population is the majority and thus the government has to pay for more of these services to satisfy their needs.

Product differentiation is a company’s ability to distinguish its products from those of other producers in the same industry. Real differentiation is when companies produce products with inherently different characteristics (Hoberg and Phillips, 2016).  Fancied differentiation is when a company produces the same products as its competitors but persuades consumers through advertising or other promotional activities that the products are different. Differentiation affects demand in that it creates consumer brand loyalty thus leading to an increased product demands.











Amadeo, K. (2019). See for Yourself If Obamacare Increased Health Care Costs. Retrieved from

Hoberg, G., & Phillips, G. (2016). Text-based network industries and endogenous product differentiation. Journal of Political Economy, 124(5), 1423-1465.