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President obama’s health care reform

The picture is a photograph of President Barack Obama giving a speech on healthcare reform.
The Patient Protection and Affordable Care Act has become a controversial topic—one which relates strongly to the topic of this chapter. (Credit: modification of work by Daniel Borman/Flickr Creative Commons)

What’s the big deal with obamacare?

In August 2009, many members of the U.S. Congress used their summer recess to return to their home districts and hold town hall-style meetings to discuss President Obama’s proposed changes to the U.S. healthcare system. This was officially known as the Patient Protection and Affordable Care Act (PPACA) or as the Affordable Care Act (ACA) , but was more popularly known as Obamacare. The bill’s opponents’ claims ranged from the charge that the changes were unconstitutional and would add $750 billion to the deficit, to extreme claims about the inclusion of things like the implantation of microchips and so-called “death panels” that decide which critically-ill patients receive care and which do not.

Why did people react so strongly? After all, the intent of the law is to make healthcare insurance more affordable, to allow more people to get insurance, and to reduce the costs of healthcare. For each year from 2000 to 2011, these costs grew at least double the rate of inflation. In 2014, healthcare spending accounted for around 24% of all federal government spending. In the United States, we spend more for our healthcare than any other high-income nation. Yet in 2015, over 32 million people in the United States, about 13.2%, were without insurance. Even today, however, several years after the Act was signed into law and after it was mostly upheld by the Supreme Court, a 2015 Kaiser Foundation poll found that 43% of likely voters viewed it unfavorably. Why is this?

The debate over the ACA and healthcare reform could take an entire textbook, but what this chapter will do is introduce the basics of insurance and the problems insurance companies face. It is these problems, and how insurance companies respond to them that, in part, explain the ACA.

Introduction to information, risk, and insurance

In this chapter, you will learn about:

  • The Problem of Imperfect Information and Asymmetric Information
  • Insurance and Imperfect Information

Every purchase is based on a belief about the satisfaction that the good or service will provide. In turn, these beliefs are based on the information that the buyer has available. For many products, the information available to the buyer or the seller is imperfect or unclear, which can either make buyers regret past purchases or avoid making future ones.

This chapter discusses how imperfect and asymmetric information affect markets. The first module of the chapter discusses how asymmetric information affects markets for goods, labor, and financial capital. When buyers have less information about the quality of the good (for example, a gemstone) than sellers do, sellers may be tempted to mislead buyers. If a buyer cannot have at least some confidence in the quality of what is being purchased, then he will be reluctant or unwilling to purchase the products. Thus, mechanisms are needed to bridge this information gap, so buyers and sellers can engage in a transaction.

The second module of the chapter discusses insurance markets, which also face similar problems of imperfect information. For example, a car insurance company would prefer to sell insurance only to those who are unlikely to have auto accidents—but it is hard for the firm to identify those perfectly safe drivers. Conversely, buyers of car insurance would like to persuade the auto insurance company that they are safe drivers and should pay only a low price for insurance. If insurance markets cannot find ways to grapple with these problems of imperfect information, then even people who have low or average risks of making claims may not be able to purchase insurance. The chapter on financial markets (markets for stocks and bonds) will show that the problems of imperfect information can be especially poignant. Imperfect information cannot be eliminated, but it can often be managed.

Questions & Answers

the various economic systems;
King Reply
what is consumer surplus
Amara Reply
Consumer Surplus is the difference between the price that consumers pay and the price that they are willing to pay. On a supply and demand curve, it is the area between the equilibrium price and the demand curve.
stedford
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Neolskae
me too I love economic very much
Kakay
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stedford
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adam
economic is a daily life
Idd
What is economics
Lekan Reply
economic is a social science that studies human behaviour as a relationship between
Kakay
economics is the study of how people allocate their limited resources to provide for their wants
Caliphonia
what causes demand curve shift to left
Richard Reply
When the price of a good rise rapidly
Daniella
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Favour Reply
what causes demand curve shifted to the left?
Richard
what is demand
John Reply
demand is amount of goods and services that a consumer is willing and able to purchase at a giving price over a period of time
roy
demand is some specific thing thats needed by consumer at a certain time
Melat
demand is the willingness and ability to demand a particular product at a particular price and at a particular time
Rahul
demand is an ability and willingness of a consumer to purchase a particular commodity at a given price over a period of time
adebiyi
What does the 45-degree line show
Hassan Reply
the supply line
Neolskae
been unemployed mean s u don't have work whilst been out of labour for means you are not in age of working or you are above the working age (aged)
roy Reply
no, only the working age
roy
Please briefly explain the relationship between the scarcity, choice and opportunity costs
Thandokazi Reply
What is the effect of raising in price to revenue
Michael Reply
yes
Saa
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nebye
price effect
Hez
when you increase price, you increase revenue
Hez
What are the types of price elasticity of supply
jamilu Reply
What's are the types of elasticity
jamilu
what is effect of riaising in price to revenue
Shiyghan Reply
consumer consumption will reduce, as well as demand will fall.
kuntu
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Foday Reply
expenditure on capital goods by the business is known as?
rhandzu Reply
ok
Shiyghan
capital expenditure
Zulkiful
I need a explanation of capitalism
Victoria Reply

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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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