ECON 142 Lecture Notes - Lecture 5: Patient Protection And Affordable Care Act, Medicaid, Health Insurance Mandate
4 Apr 2016
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Read: 213, 214, 215, 219 chapter 5, 6, & 7. Principal-agent problems: one party acting on behalf of another, but there is incomplete information. Asymmetric information: one party to a transaction has more information than another (buying a used car, enrolling in econ class hiring babysitter, taking cruise) Adverse selection: when one party takes advantage of another party"s lack of information, bad results, bad products, bad customers more likely to be selected. Buyer has more information: homeowners insurance (owner knows), car insurance (driver knows), health insurance (person knows) and in all cases the insurance company doesn"t know. The bad customers are more likely to want it. Risk pooling: a way to reduce adverse selection in insurance. Example: all drivers, not just reckless ones, have to have insurance to drive. 2010"s healthcare reform (aca) requires all people, not just sick people, to purchase insurance. Ensures that the insured population represents the overall population.
