Macroeconomics

What does the iphone5 have to do with Obamacare?

Affordable Care Act: a political impossibility for a responsible government.

President Obama on Thursday gave a speech in favor of the Affordable Care Act, and revealed the real challenge of Health Care cost in contemporary America. Without acknowledging it, the President just asserted the problem: choices for Health Care are neither complete nor comparable. Young potential insurance buyers are not hesitating about which insurer to shop for first, but for paying their next iphone bill. There is where the biggest health care cost inconsistency lays.

Several politicians from the left and from the right argue that what are needed are choices. They claim,  people may be able to choose and to pick their own insurer and their own doctors, as well as the premium each person can afford – young people claim affordability remains to be the first obstacle for health care. However, President Obama on last Thursday speech claimed the monthly cost of health care plans under Obamacare “will be even lower than the average monthly phone bill”. There is precisely where the inconsistency rests and why the debate cannot be addressed unfortunately by the right spectrum of politics. While the U.S. Government is pushing for a wider coverage at a lower cost; the opposition is pushing back the law expecting less government interference in private-personal matters. Whoever believes health care is a choice related issue is regrettably wrong.

Let’s take a look at the Choice Theory. The fundamental core of any choice is a list of options that the chooser orders as a list of preferences. Such list of preferences should reflect the chooser’s desire of getting one of them. We tend, therefore, to believe that consistency must be part of preferences; it basically means that the list of options is exhaustive, transitive and complete. Let’s assume for a minute that the law allows shoppers for exhaustiveness (all the options of health care plans are on the table); also, let’s assume for a moment that shoppers are savvy while organizing premiums (from lowest cost to highest cost). In case a person likes to pay more for his plan, the list should look like the following:

Ordinal preferences:

Plan C: $20.

Plan B: $10.

Plan D: $5.

Preference Plan C, Plan B, Plan D.

C is preferred over B.

B is preferred over D.

C is preferred over D.

That being said, what we cannot assume though is completeness. A list of preferences is complete when all options may be comparable among them. This basically means that one cannot decide between a trip to Paris or a saw for lunch. The options are inconsistent. For the same reason one cannot choose between an iphone 5 or a Health Care Insurance plan. Nonetheless, that is actual American case. However, it is not a phenomenon forged by neither Obamacare nor President Obama nor House Republicans. It is just a matter of contemporary young consumer behavior.

I will not conclude on why young people prefer the iphone5, which has to do with the Expected Utility of an electronic device versus the Expected utility of unexpected health conditions.  But, what such an inconsistency means is that neither markets nor freedom of choice can address health care cost problem. It is a market failure. Governments must interfere in challenges like those in which the stake is as high as having both healthy productive workers and well informed citizens to compete with in the twenty first century.

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