The Rise of Obamacare

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.

http://www.freedomworks.org/content/obamacare-politicians-dreams-are-debased-slothful-governance

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.

http://www.frontpagemag.com/2014/dgreenfield/va-switched-to-processing-obamacare-applications/

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!  

I have learned a lot from Dr. Caroll and I added some of the information from him. You can view his video at: https://www.youtube.com/watch?v=wBr3fniyb4w

(This blog does not represent the view of any organization or institution)

Introduction to Univeral Health Care: Understanding the Pros and Cons

Source: http://healthcarecommunication.files.wordpress.com/2010/10/patients-wecareaboutyou.jpg

One trivial question: “What do countries like England, France, Switzerland, Sweden, Germany, Australia and Canada have in common?” If it wasn’t because of Australia and Canada, “those countries are in Europe” would be a correct answer. Well, I can assure you that this article is not about geography. What those countries have in common is Universal Health Care. So what is Universal Health Care (UHC)? According to World Health Organization (WHO), universal healthcare or sometimes called universal heath coverage is “defined as ensuring that all people can use the promotive, preventive, curative, rehabilitative and palliative health services they need, of sufficient quality to be effective, while also ensuring that the use of these services does not expose the user to financial hardship.”  One of the goal of UHC is to promote “equity”, which is to ensure that quality health service is not only affordable for the rich but also for the poor. Another goal is financial protection against costly disease which could lead to personal bankruptcy for some individuals. Of course, a serious disease can put one person in jeopardy, both economically and physically. One reason is that the overwhelming financial cost incurred through treatment could be unbearable and another reason is that some seriously sick persons would not be able to go to work, which means their livelihoods (source of income) are pretty much in dismal.

American HealthCare System

So another trivial question: “What distinguishes the United States from the rest of the above countries?” Give yourself a round of applause if you confidently answer “No universal health care”. Surprisingly, the mere idea that the richest country in the history of planet Earth has no universal heath coverage for her people would leave a whole lot of people scratching their heads (including me of course). Healthcare in America is very expensive and that’s why many American buy health insurance policy from private insurance companies. The problem is not everyone can afford to buy health insurance in America. Another way American can get health insurance is through their employers. Besides, there are other social insurance programs known as Medicare and Medicaid, but I would not go into detail in this article.

The Complication of UHC: Tax Hike and Moral Hazard

The goals of UHC are desirable and commendable - a quality health service to everyone serving as a buffer against financial hardship resulted from costly disease. But why would the richest country in the whole wide world refuse to adopt such health care system despite all of the benefits for the people? Does it manifest the perception that America leaves the people in a situation in which they only care for themselves?  Come to think of it, America has its reasons for why universal health coverage is not rolled out. In all seriousness, no one enjoys seeing a poverty-stricken person unable to get treatment for his sick children or a person who has to liquidate all of his valuable assets and runs into huge debts just because he needs the money to pay the doctor to cure his wife’s chronic disease. You see, no one and no society dreams about this kind of scenario, because what we all have in common is “humanity”. We do feel compassion about the suffering of others. So UHC makes perfect sense in our society, but the painful truth is UHC does not come without a cost. In other words, it’s not free. Ultimately, someone out there must pay the price of providing treatment to everyone if a country wants to make UHC a reality, because after all universal health care system costs a great deal of money. To finance the cost UHC for the people, the feasible way for the government to do could be raising tax or running a large-scale government’s social insurance program. Well, raising tax could be a headache because it hurts everybody in the economy and jobs could also be eliminated as a results of tax hike. In addition to the problems associated with tax increase, a huge government insurance program run by the government might not be efficient and could cause a lot waste and inflexibility. We have seen in many occasions that private companies could operate more efficiently and utilize less resource compared to the government.

And then there is another complication. Let me ask you what you would do if electricity and water in your house are free or cheap to say the least. Yes, you would overuse your water and electricity like leaving the TV turned on all night or using the air conditioner or heater carelessly. By the same token, the overutilization of free health service when healthcare is free for everyone could also be a daunting problem. The overutilization of health service in an inefficient way as such is known by economists as moral hazard. As a result of people overutilizing the service, long wait time to meet with a doctor or to get treatment is the unintended consequence that comes along. A 2010 Commonwealth survey indicated that 43% of Canadian had to wait 4 or more weeks to see a specialists (http://www.healthcouncilcanada.ca/rpt_det.php?id=122). I have to clarify that one data could not represent the whole picture of a universal health care system because in contrast to Canada, only 9% had to wait 4 or more week to see a specialist in Germany and Switzerland. I choose this data in Canada to show the possibility that universal health coverage system could degrade the quality of health service rather than improving it.

Obamacare 

I have to admit that this article is far from perfect, since there are tons of stuffs that I should cover such as America’s social insurance program administered by the government called Medicare, state-run Medicaid and other statistics to demonstrate the problems associated with universal health coverage. But to do so, you know that long-hour extensive research is required. Having said that, I hope this article will serve as an introduction to the healthcare system in America and help us understand the pros and cons of a universal health coverage. I sincerely hope I can add additional details in the near future.

In the coming article, we will go through one of the most important legislation in America known as Patient Protection and Affordable Care Act (PPACA) or commonly known as Affordable Care Act (ACA) or even more commonly known as Obamacare. In the meantime, you can vist WHO’s website http://www.who.int/health_financing/universal_coverage_definition/en/ for the definition of UHC. Until then, I have to get back to my study and have a great weekend.

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- The article is for educational purpose. (No copyright infringement intended)

- The article does not represent the view of any institution or organization.