Imperfections In Health Care Market Essay

1107 words - 5 pages

Imperfections in the Health Care Market

The health care system has long been criticized for its flaws, however the problems in our health care coverage market have lessened significantly after the passing of the Affordable Care Act. President Obama passed the Affordable Care Act in 2010, and it was intended to revamp the failing health care system. Since the passing of the act, the rates of uninsured Americans have dropped significantly, however millions of Americans still remain uninsured. The health care system is far from perfect, however it has made vast improvements after the creation of the Affordable Care Act.
Many of the problems in the health insurance market can be credited to ...view middle of the document...

Adverse selection in the health care market can be illustrated by observing what happens when an unhealthy individual applies for health care coverage. When a consumer applies for coverage, they generally know whether they are healthy or not, but the insurance companies selling the coverage to them do not. If a consumer is unhealthy, then they’re generally going to opt for the most coverage. On the opposite side of the spectrum, healthy consumers tend to purchase less coverage or forgo coverage entirely, which results in an increase in prices. This happens because of the structure of the health insurance system. When one person who is insured gets sick, the insurance company uses money from the pool of people who are covered. As long as there are healthy people in the pool, those who are unhealthy can get coverage. However, a decrease in the number of healthy individuals in the pool means that the insurance company will need more money to be able to cover those who get sick, so they increase the price of insurance. This increase in price causes even more people to exit the insurance market, whether it is because they can’t afford it or because they are healthy and don’t see the benefit. This ultimately results in many people not having health insurance, which not only negatively impacts the market for health care, but also leaves many people without coverage who may end up needing it. (Lowry)
The imperfections in the health care market are not only limited to adverse selection, however. One of the biggest factors in the health care market is moral hazard. Moral hazard refers to the risk that one person in a transaction may have been misleading. When discussed in relation to the market for health care, moral hazard is almost always brought up as the link between health insurance and excess consumption. Health insurance often results in moral hazard, because those who have insurance can continue to consume the medical attention covered under their plan past the point necessary. After the insurance company has covered part or all of the fees, these individuals end up paying at a price level far below what is considered the optimal cost for the quantity of services they received. This results in imperfections in the market, because these individuals end up paying...

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