Position Paper on Market Failures in Provision of Health Care

Position Paper on Market Failures in Provision of Health Care.

Market Failures in Provision of Health Care


In this paper, we evaluate the market failure of the US health care system and the implications of the Affordable Care Act 2010. The main problems affecting the health care system are abstraction selection and inflexibility of the market, locking millions of Americans in need of an affordable healthcare plan. The paper uses qualitative research methodology to review existing empirical studies. The results obtained are used to make policy recommendations to the US healthcare reform.


The heath care system in the United States encompasses different parties including businesses, individuals and other interest groups critical in administering the public good. For a health care policy to be effective, it must aim to improve the overall quality of the health care system and positively impact the health of American citizens. The Affordable Care Act established in 2010 exhibits certain failures that contribute to the lagging behind of the delivery system that aims at providing assistance to the citizens and minimizing health care costs. There is a consensus among the major participants that the current health care plan needs to be changed to effectively benefit the millions of Americas in need of a better health insurance plan.



Review of Literature

Prior the implementation of the Affordable Care Act in the United States, the health insurance market included a large number of private providers of health care. Only a few people benefited the insurance coverage, and the majority of citizens, especially the elderly were locked out of the health care coverage. The Obama Care Act aimed at bringing more people into the health care coverage with lower premiums. However, the act brought more problems, leaving the majority of the citizens in massive debts. The main challenges affecting the health care industry include the adverse selection and inflexibility of the market due to the millions of people cannot afford health care insurance.

Adverse selection results from asymmetric information and is one the factors that affect accessibility to affordable health care. Since individuals understand more about their health status than insurers, inefficient plans exist that discriminate between the healthy citizens and those who are ailing (Vukina and Nestic 44). Due to adverse selection, healthy people are unable to get reasonable health insurance rates depending on their health status. Such people rarely purchase insurance unlike those who are ailing who often buy insurance plans to minimize their burden. Before giving a quote, insurers gauge a person’s health status, and if they have a high likelihood of falling sick, they are charge high insurance costs and premiums. As a result, the cost of health care insurance goes high for the healthy and ailing persons, surpassing the average cost of covering the medical expenses of the sick individual.

The inflexibility of insurance plans also limits the affordability of health care in the United States. The choice of insurance plans gives undue advantage to the providers at the expense of consumers, who pay the costs and premiums (Gould 5). The consumers are compelled to purchase plans that do not match their requirements and may be expensive in the end. Also, the numerous health care plans in the market may disadvantage consumers with limited education in choosing the most suitable policies that fit their budget. The inflexibility of the plans force consumers to choose policies that they did not want, and it may be difficult to switch plans midway, affecting the consumers and other participants in the insurance pool.

Study Methodology and Data Analysis

The study used qualitative research frame due to the availability of existing scholarly articles on market failures in the provision of healthcare in the United States. The qualitative research method develops a broad framework to discover and outline contextual findings that can be a basis for future studies. Unlike quantitative research, qualitative research aims to tackle research problems from a diverse point of view (McLeod 1). The paper uses government documents, media reports, journals, and professional periodicals to develop narrative remarks to support the argument on market failure in health care industry.

Discussion of Findings

Empirical studies show that in countries with a mixture of private and public health care partnership, there are concerns than patients in public insured persons are likely to be shortchanged as compared to privately insured individuals. Also, studies reveal that majority of health care providers offset their losses emerging from uninsured patients by providing low-quality services to them unlike when serving insured patients (Daysal 43). The findings support expanding private health insurance coverage to ensure fair treatment of all people in hospitals. Provision of quality healthcare services for all citizens would prevent the spread of contagious diseases and allow citizens to continue engaging in productive activities. An all-inclusive approach to heath care would benefit all citizens and work towards a 100% healthcare coverage.


The United States government has the potential of being the world leader in the provision of better healthcare to its citizens, taking into account the massive resources and strong financial power. However, direct involvement of government in the delivery of healthcare has been problematic, in particular with the Affordable Care Act of 2010. Private health insurance works best without direct government participation and therefore, the US government should implement a framework to support private health insurance. The current health care plans are in need of significant reforms to make it beneficial to American citizens by reducing the healthcare expenditures and improve the quality of healthcare services in the country.



Works Cited

Daysal, Meltem. Does Uninsurance Affect the Health Outcomes of the Insured? Evidence from Heart Attack Patients in California. Discussion Paper. Bonn: Institute for the Study of Labour, 2012. http://ftp.iza.org/dp6418.pdf.

Gould, Elise. “Increased Health Care Cost Sharing Works as Intended.” EPI Briefing Paper Economic Policy Institute 8 May 2013: 2-12. Document.

McLeod, Saul. Qualitative vs. Quantitative. 2008. http://www.simplypsychology.org/qualitative-quantitative.html. 11 November 2016.

Vukina, Tomislav and Danijel Nestic. “Asymmetric Information in Health Insurance: Some Preliminary Evidence from the Croatian State-Administered Supplemental Plan.” Ekonomska Politika (2008): 25-47. Document.


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Position Paper on Market Failures in Provision of Health Care

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