Economic Implications of Obama Care


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The United States spends approximately 17% of its Gross Domestic Product (GDP) on health care which is considered as one of the leading expenditures in the world. The rate of spending on health care is rapidly outstripping the rate of economic growth in the country. It means that by 2080 the money spent on healthcare will rise up to 40%. Despite the high expenses on health care provided by the government, most people in the country do not have access to healthcare in the country. For an instance, the rate of infant mortality for whites is estimated to be 0.57% and that of blacks 1.35%. This disparity was attributed by the lack of universal access to health care. One out of five of non-elderly has no health insurance coverage. This is approximately 50 million Americans (Fontenot 87).

Obama care also known as the Affordable Care Act (ACA) remains the greatest legislative achievement of the President signature. President Obama signed the law on March 23, 2010. It also became the most comprehensive reform in the medical system of United States in the last 45 years. It became one of the main reasons for success of congress in 2010. Obama care is responsible for offering coverage for more than 30 million people across the country to cater for the needs of those drifted away by the failing healthcare system. The legislation threatens to derail economic conditions of not only the United States but all over the globe, especially in Britain. It has the potential of accumulating great debt for the country (Affordable Care Act 6).

How Obama Care is going to relate and compare to other plans available in the market

The primary source of insurance in the country is Employer Sponsored Insurance (ESI) which covers the majority of young Americans. This insurance was created by employers to reduce risk pooling provided by the workplace setting and reduce the large tax subsidy provided to ESI. The primary sources of public insurance coverage are Medicare program and Medicaid program. Medicare program offers universal insurance program for the elderly, and Medicaid program provides coverage for the poor, especially children. The Obama care is designed to fix the broken non-employer insurance market in the United States and expand health insurance coverage across the country (Chance 380).

Obama care will transform the non-group insurance market and mandate most residents to have health insurance. It will significantly expand the public insurance and subsidize private insurance coverage. The reform will raise revenue through imposing a variety of new taxes. It will also require reorganization of funding Medicare which is the largest health insurance plan in the country. Obama care promises to lead to a drastic difference in health care environment in the United States in the years to come if the reform is implemented completely (Affordable Care Act 8).

The legislation uses state run exchange for those without healthcare insurance to pool together for lower insurance premiums. This consists of implementation on several provisions, such as banning insurance companies which promise premiums based on preexisting medical conditions. The provisions also encourage employers to sponsor health care coverage through imposing penalty. The combination of direct costs on penalties and related compliance costs will be damaging to businesses all over the country. Only the businesses with less than 50 workers are exempted from paying the penalty charges. Therefore it will greatly affect the decisions of business expansion, especially for small businesses (Fontenot 89).

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Health insurance companies will be prohibited to refuse to people who have asked for coverage on the basis of preexisting condition or any other factor. This will help Americans to purchase coverage during open enrollment periods. Other vacancies for special enrollment will arise in a particular market. Numerous provisions which are included in the Obama care are aimed at sponsoring coverage on health. The Obama care also contains various provisions to encourage the employers to sponsor the health coverage. This includes tax credit and insurance exchanges to lower plan costs and options (Affordable Care Act 10).

Economic Side of It-Financial

From an economic perspective, health care and health insurance markets have ultimate flaws that in most cases lead to an inefficient allocation of resources also known as market failure. This is what transpires to the variation between demand and supply of both commodities and services. This happens due to a fall in price to reflect accurately the benefits and costs of the product or service. The presence of market failure requires government intervention to resolve the inefficiency, unless the cost of correcting the failure is greater than the expected efficiency loss (Chance 392).

Access to health care insurance generates spillover effects or externalities to the society which might be difficult for some individual in the health insurance market to take into account. This means that it is hard to project the impact of such a fundamental reform to the health care system of the country. However, the Congressional Budget Office (CBO) did the projections because they are required for the legislative process. The projections show an increase in health insurance coverage by more than 32 million and increase in the Federal government spending approximately $ 1 trillion. Government spending will be reduced and the revenue will increase of approximately $1080 billion. Thus the bill overall can reduce the Federal budget deficit (Affordable Care Act 17).

Obama care will cause significant job losses, especially in the small businesses. The reform will reduce the amount of labor by about half percent. The approximate loss of jobs is 65 thousand places. However, the same reform will create jobs for about 4 million people. It means that the negative impact will be even worse as the provision will eliminate jobs, reduce working hours and wages, and limit job creation in the future (Fontenot 91).


The fully implemented Obama care towards health insurance system in the United States is inevitable. It is extremely difficult to predict the impacts accurately. There is great uncertainty of how the reform will decrease the cost of health care, but it is certain that it will reduce the consumer demand for health care services, reduce payments to health care providers, but will ensure an easy access to health care services. It will also promote cost effectiveness standards in health care delivery, and reduce pressure from the threat of medical malpractices claims. The reform is focused on reducing healthcare costs for the patients, nurses that promote healthcare services, such as medicine.

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