The Patient Protection and Affordable Care Act was signed into law by President Barack Obama in 2010. Commonly known as the Affordable Care Act (ACA) or Obamacare, the law expanded Medicaid, created health insurance exchanges, and i♓ncluded health-related provisions so millions of uninsured Americans could get health insurance.

Coverage was designed to be affordable under the ACA. The Act provided those with lower incomes with premium tax credits and cost-sharing reductions. The ACA inflated existing moral hazards in the health insu🐬rance industry by mandating coverage and community ratings, restricting prices, establishing minimum standards requirements, and creating a liꦯmited incentive to compel purchases.

What Is a Moral Hazard?

The term moral hazard refers to a situation where one party has an incentive to use more resources than they otherwise would have because another party is bearing the costs. One party to a contract ultimately assumes risk to the other party without any consequences. The aggregate effect of moral hazard in any market is to restrict supply, raise prices, and encꦐourage overconsumption.

Moral hazard has played a significant role in the health insurance segment of the economy. Moral hazards existed in the U.S. insurance markets before Obamacare but the 澳洲幸运5开奖号码历史查询:Act's flaws exacerbate rath🦩er than alleviate those problems. ཧThere are no normative, morality-based elements to the economic sense of moral hazard.

Moral Hazard and Health Insurance

Many argue that 澳洲幸运5开奖号码历史查询:health insurance itself is☂ a moral hazard because it reduces the risks of pursuing an unhealthy lifestyle or o༒ther risky behavior. But this is only true if the costs to the customer, including insurance premiums and deductibles, are the same for everyone.

Moral hazard is largely removed when prices are allowed to reflect real information. Decisions to smoke cigarettes or go skydiving look different when they cause premiums to increase from $50 to $500 per month.

Insurance 澳洲幸运5开奖号码历史查询:underwriting is crucial for this reason but many regulations that are designed to promote fairness ൩end up clouding this process. Insurance cꦏompanies raise all rates to compensate.

Moral hazard in health insurance in the United States was encouraged before Obamacare. Tax incentives have encouraged employer-based health coverage, placing consumers further away from medical costs. As economist 澳洲幸运5开奖号码历史查询:Milton Friedman once stated, "Third-party payment has required the bureaucratization of medical care...the patient...has little incentive to be concerned about the cost since it's somebody else's money."

Moral Hazard and the Affordable Care Act

The ACA is 2,500 pages long so it can be very difficult to grasp its full impact. But here's a look at some of the basic provisions outlined in the law:

• Insurers can no longer deny coverage to those with pre-existing conditions.
• New government 澳洲幸运5开奖号码历史查询:health insurance exchanges determine the type and cost of plans available to consumers.
• Large employers are required to offer employee health coverage.
• All plans must cover the 澳洲幸运5开奖号码历史查询:10 essential benefits of health insurance.
• Annual and lifetime limits on employer plans are banned.
• Plans are only considered affordable if the cost is less than 9.5% of family income.

The act also carried with it an individual mandate, a requirement that all uninsured Americans had to purchase a health insurance policy or pay a fine. But there were 澳洲幸运5开奖号码历史查询:hardship exemptions in place to protect those who couldn't afford coverage.

This individual mandate was signed in 2010 and it went into effect in 2014. The idea behind it was that people who were fairly healthy would decline coverage so they could save the added expense of a health insurance premium. Insurance companies would raise rates to compensate for lost revenue, putting more financial stress on those who did have coverage. Anyone who didn't have coverage would pay the penalty by including it on their federal income tax returns.

2017 TCJA Changes

The individual mandate was ultimately repealed when the 澳洲幸运5开奖号码历史查询:Tax Cuts and Jobs Act (TCJA) was passed in 2017. This law eliminated the fine imposed on people without health care coverage beginning in 2019. But there are still several states thatℱ require residents to have coverage despite t𝔉he TCJA's terms.

Restricting costs, mandating employer coverage, and requiring minimum benefits further drive a wedge between the consumer and the real cost of health care. Premiums have predictably spiked since the passage of the Act, consistent with economic theory about moral hazard.

The Bottom Line

Moral hazard results when one party uses more𒁏 resources than they otherwise would have because someone else is effectively paying for them. Moral hazard was effectivelyꦡ discouraged in health insurance when Obamacare was enacted in 2010 but the Tax Cuts and Jobs Act (TCJA) made changes to at least one key provision in 2017.