November 1, 2010

Obamacare: The Right Choice?

The article I analyzed is about government intervention into the healthcare system. This article is obviously referring to the more recent healthcare bill that Obama imposed, referred to as Obamacare. People for Obamacare argue that the previous healthcare system led to very high costs for families, leading them to going bankrupt as well as pre-existing conditions not allowing people that need medical help to get it. The problem with Obamacare is it is not necessarily fixing these problems. There are several reasons relating to microeconomics that show how Obamacare does not fix problems associated with the previous healthcare system.

Due to healthcare services being a market with many sellers and buyers, it is considered a competitive market which can be described by our supply and demand model in class. In the supply and demand model there was an equilibrium point where quantity demanded is equal to quantity supplied. Obviously the equilibrium point was not satisfying all people before Obamacare, but the way Obamacare tries to shift this is wrong. Obamacare extended healthcare to another 32 million American people. This caused a significant change in the market demand curve. The demand curve shifted to the right by 32 million which obviously creates a need for many more physicians to treat these new patients. Obamacare also limited physician reimbursements for Medicare which will cause physicians to opt out of Medicare. Due to this, the supply curve is going to shift to the left when it needs to shift to the right due to the demand curve shift. Thus, the equilibrium price becomes even higher than before Obamacare. In turn, there will be a disincentive for suppliers to supply healthcare and eventually they will drop out of the market and consumers will have nowhere to turn.

Supporters of Obamacare understand this and know that to combat the threat of a shortage of doctors we need to obviously increase our supply of doctors, nurses, etc. Instead of the bill calling for an increase in doctors it calls for an increase of 16,000 IRS agents which will be responsible for making sure Americans are buying American approved health insurance. Just a little microeconomic analysis on Obamacare shows certain flaws of this new system and that is very valuable.


Courtney Camelin said...

I have to someone who has been in the healthcare industry for 15 years and has worked as a consultant on the new regulations with multiple dr. groups, this is the BEST analysis I have read by far. You have really grasped the core issues with the bill and how they are going to impact the industry in reality and not in ideology.

Larry Eubanks said...

A couple of things:

(1) The President did not impose the health care bill. It was an act of Congress which the President signed (so I would say the U.S. Government imposed the statute).

(2) You describe the equilibrium before this recent statute as not satisfying everyone, but this would not be conceptually correct. By definition if there is market equilibrium, then buyers and sellers are, each and every one, "happy" with their choices. So, perhaps the situation you want to describe prior to the recent statute was characterized by disequilibrium, and if so, perhaps this disequilibrium was the result of earlier government statutes.