Economic Effects of Obamacare

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EconomicEffects of Obamacare

EconomicEffects of Obamacare

Oneof the postulation of the healthcare reform policy is the capping ofthe various prices of health insurance products in order to make thehealth services to be quite affordable. In this prospect, the healthinsurance practitioners are expected to standardize the premiums ofthese products regardless of the risks involved as depicted by thehealth condition of the insured. In the social context, this was abold move by the president of the united states, Barrack Obama tohelp humanity. However, from the economic perspective, it isimportant to note that this move has a far reaching effect on thereal economic variables in the country (Dubay,2011).

Inthe first instance, the government intended to subsidize theinsurance firms for lowering the insurance premium. The transcendingeffect of this subsidy is that certain aspects of the governmentprojects will have to be forfeited for inadequacy of money. Theproposition that there is high opportunity cost forgone whilesubsidizing medical costs is true (Dionne,&amp Rothschild, 2014).According to the components of the consumption function, thesubsidies represent the injection into the economy. The subsidy onthis account should address the notion of yielding profits that wouldhelp humanity. In as much as the government is capping the prices ofinsurance products in the health sector, this move has a far reachingeffect on the demand and supply of health insurance products(Mulligan,2014).The loss in investment creates unemployment to the country citizenswhich is quite detrimental to the country’s economy.

Thecapping of the prices of the insurance products leads to priceceilings. In microeconomic analysis, some of the effects of the priceceilings by the government is the disturbance in the equilibriumsupply and demand for such products. The real disturbance is createdwhere the prices are set lower than the equilibrium price in themarket. With thus notion at hand, the products would be quiteaffordable to many in the market and hence most of the people will gofor it (Baker,Bloom, &amp Davis, 2015).This has effect of increasing the demand and creating shortage in themarket. This phenomenon is illustrated by the graph below.


Fromthe graph above the government has set the prices of healthcareinsurance products at the lowest (the point marked purple). Thispoint is above the free market equilibrium (intersection betweendemand and supply). It should be noted that at this point, the demandcurve is seen to be higher than the supply curve. Thus this point ofin-equilibrium connotes shortage of supply of health products. Thereare two sets disturbances that are seen in this form of pricesceilings. The first one is the loss of revenue due to consumersurplus as depicted by the orange red portion on the graph. The nextsection is the debt weight loss as depicted by the yellow portion onthe curve (Dionne,&amp Rothschild, 2014).these disturbances in the market creates huge losses which indeedaffects other major economic variable in the country. in the eventthat the health insurance becomes quite affordable, it would onlymean that the services that would be offered by the healthcareproviders would be of poor quality since the demand is quite high andprices are not competitive enough to warrant the quality (Mulligan,2014).

Insummary, the inception of the Obamacare is adverse effects on theeconomic variables. The price ceiling brought by this regulation oflowering the prices of healthcare services create shortage of theseservices. this would lead to provision of poor quality healthservices which also has a rippling effect in the economy (Baker,Bloom, &amp Davis, 2015).


Baker,S. R., Bloom, N., &amp Davis, S. J. (2015). Measuringeconomic policy uncertainty(No. w21633). National Bureau of Economic Research.

Dionne,G., &amp Rothschild, C. (2014). Economic effects of riskclassification bans. TheGeneva Risk and Insurance Review,39(2),184-221.

Dubay,C. S. (2011). Obamacare and new taxes: destroying jobs and theeconomy. TheHeritage Foundation,(3100).

Mulligan,C. B. (2014). Sideeffects: The economic consequences of the health reform.JMJ Economics.

YWattles,Y. (2014, November 12). Taxation and Government Intervention Chapter7. Retrieved October 13, 2016, from

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