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In some industries, the U.S. government has decided free markets will not provide insurance at an affordable price, and so the government pays for it directly. For example, private health insurance is too expensive for many people whose incomes are too low. To combat this, the U.S. government, together with the states, runs the Medicaid program, which provides health care to those with low incomes. Private health insurance also does not work well for the elderly, because their average health care costs can be very high. Thus, the U.S. government started the Medicare program, which provides health insurance to all those over age 65. Other government-funded health-care programs are aimed at military veterans, as an added benefit, and children in families with relatively low incomes.

Another common government intervention in insurance markets is to require that everyone buy certain kinds of insurance. For example, most states legally require car owners to buy auto insurance. Likewise, when a bank loans someone money to buy a home, the person is typically required to have homeowner’s insurance, which protects against fire and other physical damage (like hailstorms) to the home. A legal requirement that everyone must buy insurance means that insurance companies do not need to worry that those with low risks will avoid buying insurance. Since insurance companies do not need to fear adverse selection, they can set their prices based on an average for the market, and those with lower risks will, to some extent, end up subsidizing those with higher risks. However, even when laws are passed requiring people to purchase insurance, insurance companies cannot be compelled to sell insurance to everyone who asks—at least not at low cost. Thus, insurance companies will still try to avoid selling insurance to those with high risks whenever possible.

The government cannot pass laws that make the problems of moral hazard and adverse selection disappear, but the government can make political decisions that certain groups should have insurance, even though the private market would not otherwise provide that insurance. Also, the government can impose the costs of that decision on taxpayers or on other buyers of insurance.

The patient protection and affordable care act

In March of 2010, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA) . This highly contentious law began to be phased in over time starting in October of 2013. The goal of the act is to bring the United States closer to universal coverage. Some of the key features of the plan include:

  • Individual mandate: All individuals, who do not receive health care through their employer or through a government program (for example, Medicare), are required to have health insurance or pay a fine. The individual mandate's goal was to reduce the adverse selection problem and keep prices down by requiring all consumers—even the healthiest ones—to have health insurance. Without the need to guard against adverse selection (whereby only the riskiest consumers buy insurance) by raising prices, health insurance companies could provide more reasonable plans to their customers.
  • Each state is required to have health insurance exchanges whereby insurance companies compete for business. The goal of the exchanges is to improve competition in the market for health insurance.
  • Employer mandate: All employers with more than 50 employees must offer health insurance to their employees.

Questions & Answers

what is poverty datum lin?
KayEm Reply
central problems for whom to produce
Gauri Reply
please clear it, what is your adject question?
abhinav
how do lower interest rates affect investment
meek Reply
when ever interest rate lower than investment increases
iT
which capital is best and why
Sanju Reply
outline 4 reasons why public corporation are establush
Ophelia Reply
how does the foreign currency rate affect to your needs and wants?
Donna Reply
a country can not produce everything so it needs to import some of those thing and once the currency rate becomes high we can not import as much as we can
Thembelihle
for instance let's say $1=R4 with R16 we can import more goods than when $1=R8
Thembelihle
Difference between needs and want?
Tijani Reply
what is a price mechanism
Johnny Reply
dis Is same as market market mechanism... it is the process by Wch a market solves a problem allocating resources especially deciding how much a good shld be produced
chimdindu
it is the shift of the demand curve to the left....which shows that less of a commodity is demanded
Sarpong Reply
yes
abhinav
sure
isaac
what is unemployment
Emma
yes
chimdindu
what is meant by a decrease or fall in demand
DUMBO Reply
Lower the demand i.e, lower the consumption
abhinav
dat is a shift in demand curve
chimdindu
what is industrialization
Santa Reply
Industrialization is the process by which an economy is transformed from primarily agricultural to one based on the manufacturing of goods. Individual manual labor is often replaced by mechanized mass production, and craftsmen are replaced by assembly lines.
abhinav
industrialisation is the period of social and economic change that transforms a human group from an agrarian society into an industry society..involving extensive reorganization of an economy for the purpose of manufacturing
Babakura
What is monopoly
Nancy Reply
monopoly is market structure
Atheef
monopoly is a market structure where there is only one producer or seller of a commodity
Johnny
monopoly is a market where there is only one seller
chimdindu
And the product has no substitute
Weeliems
is type of market where there are only one seller with no close substitute
Peter
has no substitute because only producer of the product in market
prem
thanks, its true
Peter
what's the summary meaning of economic
OSARETIN
what is money as used in economics
Fri Reply
store of value ,unite of account ,
Lydia
Money is any good that is widely used and accepted in transactions involving the transfer of goods and services from one person to another
abhinav
money is anything that is generally accepted by the citizens of the country to carry out the transactions of good and services for example CFAF which is generally accepted by the citizens of Cameroon to carry out good and services.
Fri
money is anything which is generally accepted by each and every person in order to purchase goods and services to fulfill his/her need or requirements
prem
money is anything dat is generally acceptable as a medium of exchange Nd settlement of debts
chimdindu
how those the government obtain economic objectives?
Santa Reply
how do commercial bank create credit
Santa Reply
commercial bank accept the deposit from the people and provide it to the needy person in the form of credit by keeping a part of deposit as reserve.
prem

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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