<< Chapter < Page Chapter >> Page >

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

Selling goods and services below or above the equilibrium price.
Daniel Reply
I will be there at the same time .....
SHADAB
Yes
HASSAN
Economics it big in the capital in
HASSAN
what is the meaning of black market
David Reply
the law of demand to price of goods if price is $13 and quantity $60, price $20 and y variable how calculate
Jackie Reply
what is diminishing marginal utility
Harish Reply
what is indifference curve
Harish
when the rate of utility goes on diminishing with every success ful unit is know as diminishing marginal utlity
Sana
what's economic growth
Rukundo Reply
what is economic growth
Rukundo
what is growth
Amina
growth is a sort form of development growth means development of only one specil part
RAJESH
one special part
HASSAN
what is wants
Daudu Reply
want is a specil desire whereas have you available resources for satisfying desire of products
RAJESH
what is scarcity
Syanda Reply
scarcity means wants
Daudu
scarcity is the situation whereby there are limited means in a world of unlimited ends.
suleysh
ok
Daudu
what is end?
Daudu
what is microeconomics
Isaac Reply
it study of only individual units like-a consumer,a firm,an industry and income of an individual.......
SHADAB
what is Economics Bacis
HASSAN
it saves time : division of labor saves time Because when two or more people forcus on a particular operation it will be quick and easy
Helen Reply
what is the function of principal
Aminu Reply
Opportunity cost is simply a forgone alternative. In other words, what deliberately or unintentionally ignored in other to concentrate on some thing else which cloud be a close alternative.
lawal Reply
What is the opportunity cost of producing 1:1301 television sets 2:100 television sets 3:300 radio tape 4:550 radio tape 5: Draw the production possibility cure.
Aslam Reply
opportunity cost simply mean a forgone alternative
Israel
opportunity cost is simply the sacrifice made for the next most desired alternative
dawda
opportunity cost is sacrifice made at expense of another want
Helen
what causes a shift in the demand curve
Emmanuel Reply
what is demand
Emmanuel
demand is the quantity of commodity that a consumer is willing ready and able to buy at a given price and at a particular period of time and place
Dahood
inflation
Israel
Demand is the quantity a consumer is willing to buy over a period at a particular time
Helen
Supply is what a producer is willing to produce at a time
ZAINAB
Demand is the of quantity of goods a be consumer is ready and able to buy at a given price and a particular period of time
ZAINAB
What is the meaning of GPA?
ZAINAB
it's help someone in times of management
Oche Reply
Hi
Daniel
can see as needed of people or desire of people,
Frank
economics is the best subject
Emmanuel
economic aids in making rational decision it also helps in analysis of government budget
ZAINAB
what is demand
Ogochukwu Reply
explain demand cove
Ogochukwu
what is demand cove
Ogochukwu
demand is the willingness or desire of ability to buy a certain commodity at a given price at a specific period of time.
fatma
demand curve is the graph which shows the different quantity of a commodity which would be bought at various prices at a particular time
Cudi
or demand curve ill represent graphically demand schedule
fatma
hy
Ali
demand is d wiliness and ability to purchase a product at a particular time
Nneka
can someone pls for me more on long and short run.... with relevant examples
Nneka
demand is the number or amount of a commodity request by a customer or consumer in order to satisfy his or her needs
Israel

Get the best Principles of economics course in your pocket!





Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
Google Play and the Google Play logo are trademarks of Google Inc.

Notification Switch

Would you like to follow the 'Principles of economics' conversation and receive update notifications?

Ask