The unintentional consequences of Obamacare

The Affordable Care Act, better known as Obamacare, was designed with the intention of offering better and more opportunities for individuals to obtain health insurance. The debate of whether we should be forced to have health insurance is not the topic of this blog, but rather has Obamacare truly allowed for better and more opportunities to obtain health insurance.

The legislation has opened the door for more companies to offer health insurance, which satisfies the more side of the equation. However, more is not always better, and it sometimes can make things worse. These new entrants will decrease the price of the most basic plans for consumers which would appear to be a positive outcome from the legislation. 

For simplicity, lets say that there are two different types of people that did not have health insurance before Obamacare. Individuals who did not want insurance and individuals who could not afford insurance. The individuals who did not want insurance, mainly due to the idea that they will not use it now, are most likely to choose the most basic plan at the most affordable price. Individuals who could not previously afford insurance are most likely to choose a plan that best fits their needs, which may or may not be basic. 

This situation leads to a 'I do not want to pay for it until I need it' type of attitude which goes against the reasoning of having insurance. Insurance is a type of community coffer where everyone contributes in case they may need to use it some time in the future. Healthy individuals, who do not think they need insurance, are paying for it now in case they may become unhealthy at some future point in time. This article discusses that in order to avoid the unwillingness of individuals to pay their portion into the community coffer the health exchange should be built with an oligopoly market. Yes, the prices for basic insurance would be higher, but so would the quality. When it comes to insurance I believe that quality is much more important than price.


Dave Tufte said...

Bruce: 100/100.

I'm perplexed by what you've written Bruce. Are you saying that consumers will have 1) more choices but not better choices if health insurance firms are perfectly competitive, and 2) more and better choices if the firms are oligopolistic?

Bruce said...

After re-reading the original post, I understand the confusion. I intermingled two scenarios without clear identification of which scenario was being described. The two scenarios are individual based and community based.

As an individual, I am going to try and get the best deal for me. If I currently have a minimal to zero need for insurance I will choose the plan that is cheapest, without regard to the quality of the plan. If I need the insurance or believe I will soon need the insurance I will purchase a plan based on the quality of the plan.

As a community we help cover the costs of individuals who are high-need based. Healthy individuals are paying for something they do not currently need, but may need sometime in the future.

Question #1: More choices but not better choices if health insurance firms are perfectly competitive, yes and no. Yes from the standpoint of the community and no from the standpoint of the individual. If the market is perfectly competitive each individual would have more and better choices. From a community standpoint, the choices would not be better due to individuals choosing basic, inexpensive plans, that would not help pay societal insurance costs.

Question #2: More and better choices if the firms are oligopolistic, no. An individual would not have as many choices to choose from, nor would they be better choices if the market was oligopolistic. From a community standpoint there would still be less choices but the choices would be better due to each individual purchasing higher quality plans that help pay the societal insurance costs of the community.

Dave Tufte said...

Bruce: 50/50.

But now I'm not sure what your questions are: they read more like statements to me :(

Or are they just supposed to be statements (which would be OK too).

Bruce said...

They were meant to be statements/ answers to the two questions from your original comment. I labeled them as question #1 and #2 to try to aim the answer to each individual question.

Dave Tufte said...

Now I get it. Doh!

Going back to the post, I think the key word is "intention". Legislators intended the Act to create more and better insurance choices.

I don't know many economists who think the Act did much to create more choices. There's been some churn in that area, but I don't think anyone is forecasting there to be more offerings available a few years down the road. I see it as more along the lines of "here were the choices that were always available that you might be able to access better if we threw some money at the problem". I know that sounds terrible, but I actually think that's about the best they could do if their intent was to effect change.

This is because, politically, I don't think they could touch the issue that healthcare insurance was not a very good business to be in for the last few decades. There's this urban myth that the insurers were making a ton of money, when the reality is they were dropping out of markets left and right because they were losing money. Lack of choice tends to be caused by lack of profit opportunities to make choices available. They couldn't just design a policy that would make insurers better off because the polity would squawk about that, so instead they designed a policy to lead potential buyers to the insurers and make it easier for the former to sign on the dotted line.

I think they may have done a better job providing better choices. The debate here seems to be that what they define as better really means more comprehensive. And what a lot of people complain about is that they can't afford all the comprehensiveness that they can't use.

But, Bruce is correct in that a big part of the scheme is to make people buy a better plan than they want or are likely to use, so that some of that money can be transferred to coverage of others.