Reference no: EM132482212

Using the notions in economics of Moral hazard and Adverse Selection (definitions are added below) to analyze the impact of the ACA/Affordable Care Act in connection to:

a). Expansion of Medicaid coverage

b.) Health Insurance Market Places

Moral Hazard refers to the insured party indulging in risks or taking less care about the acts against which the party is insured or protected against. For example, after getting insurance for the owner may not or care less about keeping the keys safe, also driving rash after getting accidental insurance. Similarly, this can be further seen in situations when uninsured populations have equal health outcomes or better then the insurance populations.

Adverse Selection refers generally to a situation in which sellers have information that buyers do not have, or vice versa, about some aspect of product quality-in other words, it is a case where asymmetric information is exploited. Asymmetric information, also called information failure, happens when one party to a transaction has greater material knowledge than the other party. In health insurance happens when sicker people, or those who present a higher risk to the insurer, buy health insurance while healthier people don't buy it. Adverse selection puts the insurer at a higher risk of losing money through claims than it had predicted when a party does not have enough information about the product quality he is going to buy. At times with adverse selection only the seller or medical professional knows the true quality of the product and buyer or patient doesn't. In this case the buyer is unsure of the quality of the product he buys.