Help me study for my Health & Medical class. I’m stuck and don’t understand.
“Health Economics” Please respond to the follwoing:
As a Human Resources manager for a mid-sized company in your area, you have been tasked with purchasing the best group health insurance for your organization. Analyze at least two (2) lifestyle choices relative to the effect(s) that these choices could have on the organization’s premiums. Support your rationale with two (2) health economic examples.
Debate It: Take a position that the full implementation of the Affordable Care Act in 2014 will or will not create a market failure for insurance companies. Provide evidence to support your position.
Expert Solution Preview
Introduction:
When purchasing group health insurance for a mid-sized company, it is important to consider the impact of employees’ lifestyle choices on the organization’s insurance premiums. In this context, this response will analyze two lifestyle choices and their potential effects on premiums, supported by relevant health economic examples. Furthermore, this response will explore the debate surrounding the implementation of the Affordable Care Act in 2014 and its potential to create a market failure for insurance companies. Evidence will be provided to support both positions.
Answer 1:
Two lifestyle choices that can have significant effects on the organization’s insurance premiums are smoking and regular exercise. Smoking is a well-known risk factor for numerous health conditions such as cardiovascular disease, chronic obstructive pulmonary disease, and various types of cancer. The increased health risks associated with smoking can lead to higher medical expenses and, consequently, higher insurance premiums for the organization.
For example, individuals who smoke are more likely to develop lung cancer, a costly disease to treat. The American Cancer Society estimates that in 2021 alone, there will be approximately 235,760 new cases of lung cancer in the United States. Such high healthcare costs associated with treating smoking-related diseases contribute to higher insurance premiums.
On the other hand, regular exercise has a positive impact on health outcomes, reducing the likelihood of developing chronic diseases and thus potentially lowering insurance premiums. Engaging in physical activity helps maintain a healthy weight, strengthen the immune system, and improve cardiovascular health. These factors decrease the risk of conditions such as obesity, diabetes, and heart disease, which are expensive to treat.
For instance, a study published in the Journal of the American Heart Association found that individuals who met the recommended levels of physical activity had a significantly lower risk of developing heart disease compared to those who were inactive. As a result, insurance companies may offer lower premiums to organizations whose employees actively engage in exercise, as they are less likely to require costly medical treatments.
In summary, smoking as a lifestyle choice increases the risk of various health conditions and, consequently, insurance premiums for organizations. Conversely, regular exercise decreases the risk of chronic diseases and can potentially lead to lower premiums.
Answer 2:
The debate surrounding the Affordable Care Act’s (ACA) implementation in 2014 revolves around whether it will create a market failure for insurance companies. A market failure occurs when the market mechanism fails to achieve an efficient allocation of resources. However, it can be argued that the ACA will not lead to market failure for insurance companies.
The Affordable Care Act introduced several provisions to improve access to health insurance, such as prohibiting insurance companies from denying coverage based on pre-existing conditions and expanding Medicaid eligibility. These changes aimed to increase the number of people with insurance coverage, leading to potential benefits for insurance companies.
Evidence suggests that the implementation of the ACA has resulted in an increase in the number of insured individuals. According to the National Center for Health Statistics, the percentage of uninsured individuals decreased from 14.5% in 2013 to 8.7% in 2018 after the ACA implementation. This expansion of the insured population provides insurance companies with a larger market and the opportunity to generate higher revenue.
Moreover, the ACA includes mechanisms such as the individual mandate, which requires individuals to have health insurance or pay a penalty. This provision helps maintain a balanced risk pool by incentivizing healthier individuals to purchase insurance. By ensuring a diverse risk pool, insurance companies can distribute the costs of healthcare more effectively and avoid adverse selection, where only sicker individuals seek coverage.
Additionally, the ACA also established health insurance exchanges where individuals and small businesses can compare and purchase insurance plans. These exchanges promote competition among insurance companies, potentially driving down premiums while maintaining quality coverage.
In conclusion, the Affordable Care Act’s implementation is unlikely to create a market failure for insurance companies. The expansion of the insured population, the individual mandate, and the establishment of health insurance exchanges contribute to a more balanced risk pool and increased competition. These factors provide opportunities for insurance companies to thrive rather than fail in the post-ACA market.
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