In the Right corner: Everyone loses with Affordable Care Act

Stephen Luty

The Affordable Care Act (ACA) was written with the intent to lower both health insurance costs and health care costs, while extending coverage to millions of Americans who would not have otherwise insured themselves. However, this act will have a negative impact on the market for health care. It does so by making assumptions about the health and actions of individuals.

Steve Luty
Steve Luty

Section 1501 of the ACA states that by forcing healthy individuals to purchase plans, it will broaden the risk pool. This means by forcing healthy individuals to buy coverage, insurance companies will be able to use these premiums to cover those who have costs higher than the premiums charged.

This act refers specifically to those with pre-existing conditions. This assumption is based on the belief that a majority of those who did not previously cover themselves did so because they were healthy.

The ACA also assumes that these “healthy people” will not drastically increase the amount of services they consume once covered. However, once people obtain coverage they will greatly increase the amount health care consumed because they are less responsive to the price of services.

There is also a moral hazard. Once insured, people will engage in less risk adverse activities, causing them to eventually require more care than previously assumed.With such a large shift in demand for health care one would expect prices to rise. The writers of the ACA knew this basic economic principle; when demand increases while supply is fixed, prices will increase.

The ACA does have a few provisions as to how the government might be able to keep prices stable by increasing supply.

The first provision is reducing market costs through economies of scale, with more patients in the market for healthcare, fixed costs are spread over a larger pool of people, reducing costs. The second way of increasing the supply of health care is through government subsidies.

The first of these subsidies are set out in Sections 5201-5208.

These sections increase the loan caps given to students in medical programs, specifically nursing, and implement large repayment programs. Through this the government would help pay for loans, but only if you work in designated areas for designated demographics set by the federal government.

Another government subsidy provided by the ACA is in Section 10502. Section 10502 appropriates $100 million to the Secretary of Health and Human Services for grants to be used toward the production of new facilities that involve research or outpatient programs.While government subsidies will increase supply in this market, the level at which they do is what we should question.

Will an increase in nursing subsidies sway more people to become nurses, enough to cover millions more seeking care? Unless one did research into possibly becoming a medical professional, I am not sure one would even be aware of these loan subsidies. Section 10502 would shift the supply a maximum of the $100 million.

Another question is whether or not one thinks it is a good idea for the government to take control and responsibility for these expenses.

When the government covers education expenses and funds the infrastructure, it is hard to pretend that the costs of a larger health care market will be covered by unused premium revenues of healthy individuals, as suggested in Section 1501.

When the government attempts to control a market through spending and regulation to the extent the ACA does, it is more of a social justice policy than an economic innovation.

Changes in federal policy move slower than real world adjustments and shifts. Because of the heightened amount of control the ACA gives to the federal government, we can expect inefficiencies in the market to occur, taking choices away from the consumer.