Healthcare is a requirement for every individual and therefore, it becomes important for every individual to pay for the necessities to stay healthy. Thus, there is an advantage for the healthcare industry to charge prices to the services provided, though when the industry works to earn their profit margins as per convenience, it leads to market failure.

(a) Imperfect competition: Imperfect competition arises when the market changes according to the demands of the customer and prices are charged accordingly. For example, the insurance companies charge higher rates for health insurance making sure only people who are not healthy take such insurances. It helps the insurance companies to earn higher margins as healthy people will not take such premiums at higher rates. Thus, market conditions are manipulated according to the requirement.

(b) Imperfect Information: Under imperfect information, market failure arises when wrong or incomplete information is provided thus, leading to asymmetric information. For example, with incomplete information, a person may buy insurance that may not cover his/her needs in the future.

Government intervention: When the medical facilities are getting costlier at a steady speed and where people are unable to afford the facilities, government intervenes and takes necessary steps to balance the situation. For example, when there is a lack of sufficient hospitals in an area and some disease or sickness is steadily spreading in that area, government intervention is required to arrange a medical facility. Similarly, at various times, the government may intervene by providing subsidies or impose or change regulations governing the market conditions.