Information Asymmetries and Risk Management in Healthcare Markets: The U.S. Affordable Care Act in Retrospect

Roger Mendoza

Journal of Economic Issues, 2017, vol. 51, issue 2, 520-540

Abstract: This article critically examines the pertinent issues in ex ante and ex post moral hazard in healthcare markets, with the U.S. Affordable Care Act (ACA) as its focal point of inquiry. First, it compares the various types of information asymmetries resulting from the production, allocation, and utilization of health insurance. Second, it reviews the literature on adverse selection, moral hazard, and risk mitigation against which salient ACA reforms are analyzed. In contrasting conventional moral hazard from an alternative theory of welfare maximization, it suggests that healthcare (over)utilization cannot necessarily be considered wasteful, even if it ends up costing insurers more on a short-term basis. Costs and savings attributable to healthcare spending under the ACA will vary between the consumer, insurer, and regulator-subsidizer. Despite the ambiguities surrounding definitions of “health,” the challenge of containing inefficient moral hazard, and encouraging its desirable counterpart, lies in the tradeoffs that arise between consumer access to affordable and quality healthcare and the market competitiveness of health insurers. The new Trump administration will have to address these tradeoffs in repealing and replacing the ACA, particularly in light of escalating insurance premiums and deductibles, narrower provider networks, and technical implementation issues.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:mes:jeciss:v:51:y:2017:i:2:p:520-540

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DOI: 10.1080/00213624.2017.1321451

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