Obamacare: Should governments subsidize health insurance?
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- alisterpaine
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The Obama administration and the Democrats in Congress have made “reform” of the U.S. health insurance system one of their top priorities. The stated goals of this reform are covering the uninsured and slowing the growth of health care costs.
Critics of ObamaCare focus on the negatives it might generate, especially higher taxes and rationing. Many also question whether it will in fact bend the healthcare cost curve. These concerns are well taken, but they are just the tip of the iceberg. The ideal “reform” is not creation of a new government health insurance program but elimination of existing programs. Here’s why.
The standard argument for subsidizing health insurance holds that applicants for insurance know whether they are healthy or unhealthy, but insurers cannot tell which applicants are which. Under this “asymmetry of information,” insurers must offer the same premium to everyone, but then only the unhealthy want to purchase insurance. This “adverse selection” of applicants means private insurance might not arise or might only serve a portion of the market.
Critics of ObamaCare focus on the negatives it might generate, especially higher taxes and rationing. Many also question whether it will in fact bend the healthcare cost curve. These concerns are well taken, but they are just the tip of the iceberg. The ideal “reform” is not creation of a new government health insurance program but elimination of existing programs. Here’s why.
The standard argument for subsidizing health insurance holds that applicants for insurance know whether they are healthy or unhealthy, but insurers cannot tell which applicants are which. Under this “asymmetry of information,” insurers must offer the same premium to everyone, but then only the unhealthy want to purchase insurance. This “adverse selection” of applicants means private insurance might not arise or might only serve a portion of the market.
