This article wraps up the Universal Health Care Trilogy written by Econoobics. He has presented to us both the light and dark sides of Univercal Health Care, and it seems that at the end, we are the ones to make the decision. This is something that a nation has to go through along the road of development, and thus, as citizens, it is our duty to understand and be involved as much as we can. On behalf of Econoobics, I hope that this article and the previous two (see the links below) will sate your hunger for knowledge, my dear readers.
I do not own or generate any of the content. All credit goes to Econoobics. Please visit his blog via the link provided above.
I’m back once again after a brief hiatus, since I devoted most of my time on reviewing for my final. Last time we talked about American health insurance industry and the need for a major reform due to the lemon problem that leads to market failure in the industry. If you haven’t read my previous article, I would highly recommend you to spend your time on reading it. Here is the link: http://econoobics.blogspot.com/2014/11/the-health-insurance-sector-asymmetric.html.
To remedy this market failure, the Obama’s administration enacted one of the most important piece of social policy legislation in American history in March 2010 known Patient Protection and Affordable Care Act (PPACA) or Affordable Care Act (ACA) in short. To simply understand the Affordable Care Act (ACA) A.K.A Obamacare, the legislation could be separated into three main parts. Dr. Aaron Carroll made an analogy between Obamacare and a table with three legs. Without further ado, let’s go through each of the three main parts.
In the previous article I hope you still remember that the health insurance companies, in order to maximize its profit, would deny health insurance coverage enrollment if you are found out that you have any pre-existing condition due to the fact that you are more likely to get sick than other clients. Even if you are already insured by the insurance companies and constantly pay the premium to the insurance companies, chances are that you also could be denied payment of your medical cost in the event that you have any pre-existing condition but you purposefully or inadvertently conceal that information during your enrollment. Thus, to fix this broken health insurance sector, the Affordable Care Act (ACA) issues a mandate that prevents health insurance companies from discriminating health coverage against Americans with pre-existing conditions or denying medical payment to those with pre-existing conditions. What that means is that I will be able to claim my medical payment for the prior sickness that is not reported during the enrollment. In addition, young adult can stay covered by their parents’ health insurance plan until they are 26.
The first mandate is probably a bitter pill for the insurance companies to swallow because they would be in trouble if only sick people purchase health insurance coverage when they know that they would get ill soon and healthy people refuse to purchase health insurance until they are at the age of being vulnerable to sickness or know that they would get sick soon. It seems like Obamacare is hurting the insurance companies. Awesome as it may appear to American people, the insurance companies would not be foolish to enter this health insurance market given that there is a high chance of making a loss or possibly raise the premium of the health insurance. The question is how can the government make everyone buy a health insurance. Well, one way is to raise awareness that health insurance is a buffer against future financial hardship in hope that people will buy the insurance which takes longer. There is another way which is more immediate and the federal government has every rights to do so which is to force everyone to buy one. To remedy this situation which is unfavourable to the insurance companies, we come to the second leg of the table - the second mandate of the ACA known as the individual mandate. At the consumers side, the ACA mandated every Americans older than the age of 26 to purchase a health insurance coverage or otherwise face a penalty. You see, the aim of this individual mandate is that the insurance companies would be able to identify the distribution of risk (getting sick) of the American people when a large proportion of Americans buy the the health insurance due to a classic and beautiful statistical concept known as the law the large number. The large of large number simply states that the larger the sample is, the closer and closer the sample mean is to the population mean. From this distribution, the insurance companies can have enough information to charge a health insurance premium commensurate with the likelihood of a person getting sick. In addition to understanding the distribution of getting sick, the ACA also needs young and healthy people who are less prone to illness to help pay for the cost of people who get sick. But that does not mean that there is no point for the young and healthy people to buy the health insurance. You see, sickness and accident is not foreseeable and it does not necessarily mean that a young person never get sick. Thus, to prevent any future financial hardship as a result of a disease, it is wise for the young people to get the insurance. If this mandate can go as planned, the ACA will be able to solve the lemon problem that is a result of asymmetric information.
Last but not least, the ACA does not end here. What happen to those who can’t afford a health insurance plan? There certainly will be a group of people who are not able to afford the health insurance premium, as this may not surprise you since health care in America is very costly. To help those at the bottom of the pyramid so that they are also insured, the ACA also provides subsidy to those who can’t afford it. More specifically, you will be subsidized if your income is less than 400% of the federal poverty level (FPL). That is, subsidy will be provided if you make less than approximately $46,000 if you live alone or approximately $94,000 for a family of four according to Dr. Carroll’s Youtube’s video. You can see the information on the FPL in detail by going to this link: https://www.healthcare.gov/glossary/federal-poverty-level-FPL/. The Federal Poverty level in 2014 is $11,670 for individuals and $23,850 for a family of four.
Folks, those are the important parts of Obamacare: health insurance company mandate, individual mandate and subsidy. We would like to wish that the ACA will be a success but it seems like that not many people are happy with it especially the Republicans who is now controlling both the Congress and Senate. When a social policy is as huge as the ACA, it is almost impossible to avoid talking about politics. Obamacare is one example of how the government can intervene in the market and takes the matter into their own hands without relying on the invisible to do its job. The debate is still going on and we have to wait and see whether the ACA will achieve its goals. I hope to see you in the next article possibly related to efficiency and equity. Have a Merry Christmas and a delightful New Year! See you New York City and DC!