The "twin problems" are rising prices for all and limited access (lack of insurance) for about 16 percent of the population. The problems are related since rising costs make insurance unaffordable for many individuals and families and make it difficult for some businesses to insure their workers.

Income elasticity is 1.0 suggesting that health care spending will rise proportionately with income. Price elasticity is only 0.2 meaning higher prices for health care services will increase total health care spending.

Health care insurance removes or greatly lessens a person's budget restraint at the time health care is purchased raising health care utility per dollar spent and causing an overconsumption of health care. In Figure 35-3b insurance reduces the price of health care at the time of purchase from P_u to P_i increasing the quantity consumed from Q_u to Q_i. At Q_i the marginal cost of health care is represented by point b and exceeds the marginal benefit represented by c indicating an overallocation of resources. The efficiency loss is area cab.