A lot of the complaint around Obamacare is the result of the fact that some people are seeing increases in healthcare premiums, as noted by Forbed.com. And while this article in the Wall Street Journal shows that healthcare expenditures (as a percent of gdp) have been declining in the past few years, it is no secret that the premiums themselves may cause trouble for some people. As with most legislation, there are winners and losers.
But this brings to mind a comment I made on one of our fellow student’s blogposts about Obamacare. I noted that higher prices for health insurance, while unpleasant, may in fact be closer to the prices that arise in a closer-to-perfect market than the prices we saw before Obamacare was implemented. In this post, I’d like to expand on that idea a bit.
To start, let’s first recall that before Obamacare, there were many people who wished that they had health insurance but did not, either because it was too costly or because people were denied access for pre-existing conditions. In this sense, the pre-Obamacare market was imperfect from a welfare point of view because many people who wished that they had insurance did not.
Now, with Obamacare, that imperfection is essentially deleted. Everyone has access to healthcare coverage because, well, it’s required (and it’s probable that most of those who didn’t have coverage in the first place did indeed want it) and because those who could previously not afford it now can, with government subsidies. The wealth distortions is may cause are likely outweighed by the improvement in welfare.
Now, the big flaw with this argument is that the market previously was more perfect because demand curves are a function not only of your preferences for having or not having healthcare, but also your ability to pay for them (ie your budget constraint). But, the idea that this made the market more perfect assumes that there aren’t substantial welfare gains from Obamacare. That is, the pre-Obamacare demand curve may have been more pure when you think only about wealth maximization, but when you consider that the new, increased demand curve is associated with increased welfare for many people who gained a lot of utility from their newfound ability to purchase health care coverage, you might say that the new Obamacare demand curve is purer from a welfare point-of-view (which, ultimately, is what economists care about anyway).