Market Failure and Society relations
The Affordable Care Act has improved the market failures of the health insurance industry by providing a platform for consumers to access more suitable coverages.
Market Failure occurs where resources cannot be efficiently allocated due to the breakdown of price mechanism(Business Dictionary’s definition). It would restrict the possibility of economic growth, because the level of productivity would diminished compare with well-used resources.
Asymmetrical information is the most common market failure in the whole insurance industry. It refers as when consumer and seller have different level of information, which consumer or seller might have chosen the wrong coverages to purchase or sell. The possible reasons of it occurs in insurance market are the first priority of sellers tends to be their own interests, such as the amount of returns and numbers of coverages cold. For instance, insurers with better information on the insurance premiums and would selectively recommend consumers the one which mostly benefits themselves. Relatively, in the case when sellers have imperfectly information about the risk level of consumer have, adverse selection is perceived to be the second major source of market failure in insurance market, which individuals have more information on their risk types than insurers. It is a serious problem, as if the health insurance plan isn’t suitable to the user, then it would be wasted or underused, for example, if consumer has chosen dental insurance, but actually they do not really need it, then the plan is underused.
The introduction of Obamacare has reduced the possibility of asymmetrical information by creating “ Health Insurance Marketpl...
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...efore the introduction of the ACA, women has to paid up to a million dollars more than men each year for health insurance coverages in the individual market(obamacarefact.com). However, the health reform has prevent any discrimination base on people’s health states and genders. From the Affordable Care Act sections “ Sec. 2704. Prohibition of preexisting condition exclusions or other discrimination based on health status.” and “Sec. 2701. Fair health insurance premiums.” They states that any insurance offering groups are not able to discriminate any pre-existing conditions or disability or genders or ages etc, which prevents inequality and helps to increase the numbers of insured. Hence, as more people gets better health, there would be more available resources in the economy. It expands the workforce and employment rates, and creates possibility of economic growth.
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