One of the greatest crises faced in the United States is rising healthcare costs. Rising medical care costs are coupled with rising insurance rates, creating a scenario where many are left without the insurance coverage and medical treatment that they need. The third party payment system distorts the healthcare market because of a lack of price transparency (Jacobs, 2016). When a patient receives services, they have no concept of what the treatment will cost. They know what their insurance co-pay is, but they often never know how much the insurance paid.

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The purpose of third party payment systems was to take the burden of healthcare costs from the person receiving the services (DeMerceau, 2018). This is the reason why the system is attractive to wealthy countries. The purpose is to make certain that healthcare is a basic human right and not only something the wealthy can afford. For those who are elderly, a separate payment system is needed because they often do not have the income sources to pay for insurance (Smith, 2015). They are at a time when their healthcare costs are expected to rise and their income is reduced due to retirement. The Medicare/Medicaid system is designed to help defray the medical care costs of the elderly. In this system, the government acts as the third party.

The two alternatives that have been proposed as alternatives are a single payer system that is similar to having Medicaid for everyone and an open market system. The problem with a single payer system is how to pay for it. It would mean an increased tax burden on the citizens. The other alternative is a market-based system. This would encourage price competition and may lower costs but would leave those in the lower income brackets unable to afford coverage. It seems that there is no single perfect solution to the problem.

  • DeMerceau, J. (2018). Define third-party health insurance. Small Business Chronicles. Retrieved
  • Jacobs, C. (2016, May 13). The problem with healthcare costs: third-party payment. The Wall Street Journal. Retrieved from
  • Smith, L. (2015, November 24). What’s the difference between Medicare and Medicaid? Investopedia. Retrieved from