Imperfections in Health Care Market

Imperfections in the Health Care Market

The health care system has long been criticized for its flaws, however the problems in our health care coverage market have lessened significantly after the passing of the Affordable Care Act. President Obama passed the Affordable Care Act in 2010, and it was intended to revamp the failing health care system. Since the passing of the act, the rates of uninsured Americans have dropped significantly, however millions of Americans still remain uninsured. The health care system is far from perfect, however it has made vast improvements after the creation of the Affordable Care Act.

Many of the problems in the health insurance market can be credited to bad allocation of resources, one of the most significant of which being the increase in premium rates. Increasing government controls in the health insurance market can be attributed to the increase in premium rates. One example of these controls was rate bands, which would limit the variation of premiums based on your overall health and other contributing factors. “For example, if an average monthly premium is $500 and the rate band restricts premium variation to 20 percent, then the lowest premium the insurer can charge for that policy is $400 and the highest is $600. Even if an insurer is willing to charge you less than $400, it is forced by the government to charge you at least that much,” (Basu). Rate bands and other rate restrictions similar to these didn’t significantly help the health care market, because they simply made people who were healthier and younger pay more in order to lessen the cost for older people. While the efforts may have seemed helpful at the time, the resources wasted on controlling premiums should have been applied to a more concrete objective.

Adverse selection is when buyers and sellers have different information and as a result of this lack of mutual knowledge, undesired results occur. Adverse selection in the health care market can be...