PART A: The government is no longer going to be part of health care and the curr

Question

PART A: The government is no longer going to be part of health care and the current system is to be replaced by one where consumers buy their own insurance policies from competing companies. What are the advantages and disadvantages of this system? If you were put in charge of administering this system, how would you make it operate effectively and efficiently?

PART B: Instead of what was described in PART A, the United States has decided to institute a form of National Health Care, similar to what Canada has. What are the advantages and disadvantages of this system? If put in charge of administering it, how would you make this system operate effectively and efficiently?

Explanation / Answer

The advantages of this kind of system is perfect competition among insurance companies leads to efficient outcome . Privatization of healthcare leads to more efficient production and services since every company wants to gain a substantial market share , also the moral hazard problem is better tackled by private companies . The disadvantages are that private companies are profit maximizers . They do not acknowledge the positive externality generated from healthcare services . So the insurance policies having higher market price may be costlier for some section of society . If I was put in charge of such a system , I would put a price ceiling on insurance policies to prevent them from rising to very high levels . Also I would prevent monopolization of insurance market to naturally keep the output and price efficient .

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