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Affordable Care Act not affordable

Published: Monday, February 4, 2013

Updated: Monday, February 4, 2013 17:02

President Obama’s largest attempt at political leadership in his last term was the endorsing of the Affordable Care Act, or “Obamacare.”

This act was intended to assist Americans who could no longer afford healthcare due to rising costs.

Obamacare works in three big ways in order to try to bring all Americans to equal footing in healthcare:
• forcing insurance companies to cover clients with pre-existing conditions,
• mandating all Americans purchase health insurance, and
• providing governmental assistance to Americans who cannot afford insurance on their own.

Obama believed that taking these actions will help the average American combat rising healthcare costs.

However, I do not think this will be the projected case once basic economic principles are applied.

We know that healthcare costs are rising, but how much are they rising?
To put this in context, minimum wage in 1980 was $3.30/hour compared to $7.25/ today.

In 1980, Americans spent $256 billion on healthcare compared to $2.6 trillion in 2010.

While most things have doubled or tripled in price over the last 30 years, healthcare has multiplied tenfold.

This occurred for several reasons.

As baby-boomers get older they require more and more medical attention. This leads to an increase in demand for health services, which drives the price upward.

In addition to that, new technologies have been developed which help decrease the cost of healthcare but also increase lifespan, which creates additional demand and drives the price further upward.

In a normal free market situation, extra demand would be matched by additional supply leading cost to  decrease again.

This is true for most free market situations.

For example, in the early 1980s, a new VCR would cost about $300. Today you can get a DVD player (superior technology and increased demand) for $40.

If the market naturally adjusts for demand increases and technological advances, why is healthcare not getting more affordable?
In short, healthcare doesn’t follow the economic system like normal goods or services would. This is due to the economic principle of moral hazard.

Moral hazard occurs when a consumer does not act like he normally would in an economic situation due to an outside force.

The outside force in this situation is health insurance.

Since insurance allows consumers to pay for the service of healthcare before they receive it, the consumer can try to get the most for his money by making unnecessary trips to the doctor (common cold, to get out of work, etc.)
Insurance companies try to combat this use by raising premiums, which worsens the situation.

Doctors see that consumers are not shopping around and so they can raise their prices.

The process will repeat indefinitely if allowed.  The best example of how medicine can decrease in price without insurance is LASIK eye surgery.

A LASIK eye surgery would have cost about $11,000 in 1997 and was not covered by insurance. This is because it is treated like a cosmetic surgery.

Not having insurance forces patients to shop around and find the best price for the surgery. Now, about 15 years later, LASIK eye surgery costs around $2,000.

If some economists are correct about insurance being the cause of the rapid rise in healthcare costs, then Obamacare adding millions of Americans to the insurance system will not help the greater good, but will increase healthcare costs for America as a whole.

In a time where the economy is weaker than it has been for decades, America can’t afford to play politics with healthcare.



Korey Speaight is a sophomore accounting and business management major of Camp.

 

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