This is an open discussion about health insurance. I don’t pretend to be an expert, so please add your thoughts and/or tell me how wrong I am. This is the final of three parts.
The Affordable Care Act (aka ACA or Obamacare) is Obama’s signature legislation, and a step forward for health care in the US. However, it’s very complicated, and few people understand the whole thing–I certainly don’t. Nonetheless, below I present a few ways in which the ACA addresses, or fails to address, challenges in health insurance.
- Individual mandate – As previously discussed, people with high health risks tend to dominate the insurance market, which can lead the market to collapse. The individual mandate addresses this issue by requiring most people to buy health insurance, even if they have lower health risk. This also leads to redistribution from healthier people to less healthy people. The problem with the individual mandate is that it only imposes a minor unenforceable tax on people who don’t buy health insurance.
- Limiting price discrimination – In absence of regulation, insurance companies prefer to charge people in proportion to their health risks. Under ACA, insurance companies can only choose prices based on location and age, and smoking status, and are not allowed to deny high-risk customers. This is great because it redistributes wealth, and in principle increases efficiency as companies no longer have to evaluate the health risks of individual customers. Unfortunately, there’s still some price discrimination as insurance companies offer different plans targeted at different risk groups. Fortunately, the government also regulates what kinds of plans can be made available.
- Expansion of Medicaid – Medicaid is health insurance for low income people (as opposed to Medicare, which is for older people). ACA expands Medicaid to cover a larger group of people. Unfortunately, the federal government can’t force states to enact the expansions, and can offer financial incentives. Some states (mostly conservative ones) have opted out, essentially volunteering to be the control group in a grand experiment. Based on results, the control group seems to be missing out.
- Single-payer? – Many liberals consider ACA to be unsatisfactory, and that a better system would be single-payer healthcare. That means that instead of people shopping for health insurance, the government pays for healthcare (like with Medicaid or Medicare). I’m not saying that it wouldn’t be better, but I don’t understand what exactly about it would be better. In a basic analysis, the government would have a lot of bargaining power, and there’s probably some efficiency advantage to the large scale. On the other hand, when people choose their own insurance, they are incented to pick the insurance with the best outcomes, whereas the government tends to have different incentives.
What other important things did I miss? Could you explain to me what’s so great about single-payer healthcare?