ObamaCare Rationing

The following hypothetical example is the first in an occasional series of essays arguing for the need to repeal and replace ObamaCare.

Figure 1

At equilibrium, the quantity supplied is equal to the quantity demanded, 5 units of medical insurance, with a corresponding price of 50 units of money (Figure 1).

Figure 2

With ObamaCare’s individual mandate, demanding that every American purchase medical insurance, the demand curve shifts rightward to reflect the increase in quantity demanded, and supply meets demand at a new equilibrium price, 70 units of money, corresponding to an increase in costs for factors of production (Figure 2).

Figure 3

But with ObamaCare also preventing medical insurance companies from adjusting the price to pay for increased costs at the new equilibrium, imposing a price control at 50 units of money, the quantity that medical insurance companies are able to supply at the old price remains at 5 units, while 9 units of medical insurance would be demanded at the artificially low price (Figure 3).

ObamaCare illustrates how bad economic policy can result in a shortage of medical care and government rationing, as observed under communism.

References

N. Gregory Mankiw, Principles of Economics, Fifth Edition (Mason: Cernage Learning, 2009).

Graham Bannock, Ron Baxter, and Evan Davis, The Economist Dictionary of Economics, Fourth Edition (Princeton: Bloomberg Press, 2003).

Joseph White, “Budgeting for Entitlements,” in Handbook of Government Budgeting, ed. Roy T. Meyers (San Francisco: Jossey-Bass, 1999).

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