Part B
In 2012 President Barack Obama passed the Affordable Care Act, also known as “Obamacare”. This Act
reforms the health care system in the United States. A key element of the Affordable Care Act is to mandate
people to buy health insurance plans from centralized exchanges. The insurance plans available from the
exchange must have some required characteristics. For example, all plans must cover 10 essential
categories: ambulatory patient services; emergency services; hospitalization; maternity and newborn care;
mental health and substance use disorder services, including behavioral health treatment; prescription
drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness
services and chronic disease management; and pediatric services, including oral and vision care.
In addition, the new law does not allow insurers to charge different rates for health insurance because of
health status or gender. The government mandates everyone to be insured, by providing subsidies to lowincome
individuals and applying penalties to uninsured individuals.
In the course of promoting the new health care system, the President stated that the Affordable Care Act
will increase the pool of insured which will result in lower premiums. However, opponents of the
Affordable Care Act argued that forcing insurance companies to charge the same premium notwithstanding
the client’s health status will result in higher premiums.
Required
1. Based on your understanding of insurance, explain why opponents of the Affordable Care Act believe
that mandating insurance companies to insure people with pre-existing conditions on the same terms as
people without pre-existing conditions will result in higher health insurance premiums, and in time will
result in the collapse of the health insurance market?
2. Explain why a key component of the Affordable Health Care Act is the imposition of a penalty on people
who do not purchase a complying health insurance policy (ie. why does the Government believe that a
penalty is necessary for the new system to work)? How high does the penalty need to be for it to have the
desired effect? (hint: no calculations are needed, just a conceptual answer of how high the premium has to
be set for the Government to achieve its goal).
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