Question

A last-minute enrollment surge enabled the White House to meet its 7 million sign-up target for the Affordable Care Act. President Barack Obama said on Tuesday that 7.1 million people had signed up on federal or state exchanges for coverage under the healthcare law. a. If the White House target was to enroll the efficient quantity of families in Obamacare, how would it have determined that target? b. Draw a graph to illustrate the health-insurance market and illustrate how the Obamacare subsidy influences the number of families covered. c. How would the demand for health insurance change if the penalty for not signing up for Obamacare were abolished? Draw a graph to illustrate the outcome

Short answer

Efficient quantity is determined by equalizing marginal benefit and cost. Subsidies shift the demand curve right; abolishing the penalty shifts it left.

Step-by-step solution

- Understanding the Efficient Quantity Target (Part a)

To determine the efficient quantity of families to enroll in Obamacare, analyze the demand and supply curves for the health insurance market. The efficient quantity is where the marginal benefit (demand) equals the marginal cost (supply). The White House likely used data on healthcare needs, costs, and the benefits of insurance coverage to set this target.

- Draw and Interpret the Health-Insurance Market Graph (Part b)

Draw a standard market graph with price on the vertical axis and quantity on the horizontal axis. Illustrate the demand curve (downward sloping) and the supply curve (upward sloping). Show the equilibrium point where these two curves intersect, representing the initial market without subsidies. Add the Obamacare subsidy by shifting the demand curve to the right. The new intersection with the supply curve represents the increased number of families covered due to the subsidy.

- Analyze the Effect of Abolishing the Penalty (Part c)

If the penalty for not signing up for Obamacare is abolished, the demand for health insurance would decrease. Draw a new graph, similar to the one in Step 2, but shift the demand curve to the left. The new equilibrium point will show a lower quantity of health insurance coverage compared to when the penalty was in place.

Key concepts

Efficient Quantity

The concept of efficient quantity is crucial in understanding how to determine the optimal number of families to enroll in Obamacare. The efficient quantity is found where the marginal benefit (demand) equals the marginal cost (supply). This means the benefit families receive from health insurance matches the cost of providing it.
To set this target, the White House would gather data on various factors, such as:

• Healthcare needs of the population
• Costs associated with providing insurance
• Overall benefits of coverage to families

With this information, they can identify the intersection where the benefits and costs are balanced, ensuring resources are used efficiently.

Demand and Supply Curves

Understanding demand and supply curves is essential to grasp the dynamics of the health insurance market. The demand curve shows the quantity of health insurance families are willing to purchase at various prices, typically downward sloping. This means as the price decreases, more families want to buy insurance.
Conversely, the supply curve shows the quantity of health insurance providers are willing to offer at different prices, which usually slopes upward. As the price increases, insurers are more willing to offer plans.
Illustrating these curves on a graph is helpful. The intersection of the demand and supply curves represents the market equilibrium, where the quantity demanded matches the quantity supplied.

Market Equilibrium

Market equilibrium in the health insurance market is where the demand and supply curves intersect. At this point, the price of health insurance and the quantity available balance perfectly. No surplus or shortage exists.
To visualize this:

• Draw the demand curve as downward sloping
• Draw the supply curve as upward sloping
• The intersection point is the equilibrium

This equilibrium changes when external factors, such as subsidies or penalties, influence the market. For instance, the introduction of an Obamacare subsidy shifts the demand curve to the right, leading to a new equilibrium with more families covered.

Health Insurance Subsidies

Subsidies under Obamacare play a pivotal role in increasing the number of families with health insurance. A subsidy effectively reduces the price families pay, making insurance more affordable.
When representing this on a graph, the subsidy shifts the demand curve to the right, as more families are now able to purchase insurance at lower effective prices. The new equilibrium shows an increase in the quantity of health insurance policies purchased.
The subsidy ensures that families who might have been priced out of the market can now access health insurance, thus increasing overall coverage and benefiting public health.

Penalty Elimination Effect

The penalty for not signing up for Obamacare initially encouraged many families to get insured to avoid extra costs. If this penalty is eliminated, the demand for health insurance would decrease.
On a graph, this would be shown as a leftward shift in the demand curve, leading to a new equilibrium with fewer families covered by insurance.
This decrease in demand occurs because without a penalty, the financial incentive to get insured is reduced. Fewer families would consider health insurance a necessary expense, thereby lowering overall enrollment levels.
Understanding these effects helps predict how policy changes impact health insurance markets.