How Would the Law Affect the Demand for Health Insurance?

The law will affect the demand for health insurance because it will change how we purchase and use it. The new mandatory health insurance program in most states will require individuals to have health insurance or pay a fine.

This will impact how much money individuals can spend on health care, which means they can afford to buy and use health insurance. The cost of health insurance will also affect the demand for health insurance. If the cost is too high, people will not purchase it. If the cost is too low, people will not use it.

How Would the Law Affect the Demand for Health Insurance?

How Would the Law Affect the Demand for Health Insurance

When the “law” appears in a market, it affects supply and demand. The Affordable Care Act’s implementation is a textbook case in point. As an illustration, we’ll refer to it as “the mandate.”

Because employers with “x” number of employees need to provide health insurance, the demand for health insurance grew up, as did the ability to shop for health insurance through the marketplace if your employer did not offer it. So, you were self-employed or wanted to see if you could get a better policy than your employer-provided.

These individuals frequently encountered difficulties acquiring health coverage due to a pre-existing medical condition (a pre-existing condition). Indeed, before the Affordable Care Act’s (ACA) implementation, many people with significant health conditions could not acquire health insurance.

Individual health insurance and employer-sponsored health plans cannot refuse coverage to persons with pre-existing health issues. Let’s discuss this further:

How the Affordable Care Act affects HIPAA

How Would the Law Affect the Demand for Health Insurance

The Affordable Care Act (ACA) enables individuals with pre-existing diseases to receive health insurance. Individual health insurance and employer-sponsored health plans cannot refuse coverage to persons with pre-existing health issues.

Individual health plans that existed previous to September 23, 2010 (referred to as grandfathered policies) may still have exclusions for pre-existing conditions. On or after September 23, 2010, plans issued or renewed must comply with the ACA regulations.

Buyers’ Market for Private Health Insurance

Buyers' Market for Private Health Insurance

The remainder of his health insurance premiums is deductible so that his health care expenses exceed 3% of the adjusted gross income (150$ tops).

This tax provision reduces the effective cost of health insurance. Additionally, the identical clause exists in most State income tax statutes and several local income tax statutes.

The second method in which the tax system subsidizes health insurance purchases is the “employer exclusion.” Under current federal and state income tax legislation, an employer’s contribution to his workers’ health insurance plan is entirely deductible as a business cost.

What about the premiums?

Additionally, employer-sponsored health insurance premiums are out of the social security tax. This provision provides a substantial tax incentive for employees to select in-kind perks over cash compensation.

All this, if his employer paid him an additional $100 in cash; if the employer purchased health insurance for this same employee instead of paying him the other $100 in cash, the employer could spend $100 (or 34% more) on health insurance.

The employer doesn’t care whether he pays the employee $100 in cash or $100 in bought health insurance premiums in the tax system. Either payment method is entirely deductible as business expenditure when the employer calculates his profits tax.

On the other hand, one hypothesizes that paying employees for health insurance benefits rather than cash fosters employee loyalty and reduces labour turnover costs. 

If your income is low and your state hasn’t expanded Medicaid

Suppose your state has not expanded Medicaid and your payment is below the federal poverty threshold. In that case, you will be ineligible for either a health insurance savings program: Medicaid coverage or discounts on a commercial health plan purchased via the marketplace.

According to moral hazard theory, if they eliminate policyholders’ expenses under a single-payer, publicly-funded universal health insurance system, demand and expenditures become endless. The idea casts doubt on the value of any form of health insurance. 

However, the notion that comprehensive health insurance contributes to price and utilization control is not part of the moral hazard theory. While Finkelstein presents evidence suggesting persons with more significant health insurance utilize more medical services, she ignores other compelling motivations for unwell patients to seek medical treatment or the cost savings associated with free health care. Rather than that, opponents claim moral hazard anytime officials make a mistake.

How does lack of insurance affect access to care?

How does lack of insurance affect access to care?

Health insurance has a significant impact on whether and when people receive necessary medical treatment, the location of their care, and, ultimately, their health.

Uninsured individuals are significantly more prone than insured individuals to delay or forego health treatment entirely. The ramifications can be severe, especially when avoidable or chronic diseases go undiagnosed.

Compared to those with health insurance, persons without health coverage are more likely to forego preventative procedures and report not having a regular source of health care. 

One factor for uninsured individuals’ lack of access is that half do not have a regular location to go when they are ill or want medical advice, whereas most insured persons do, because uninsured people are also less likely to obtain appropriate follow-up screenings than insured patients. They have a higher death rate than insured patients.

Frequently Asked Questions

What is the effect of insurance on demand for health care and health outcomes?

This is a pricing impact that occurs directly. Due to moral hazards, insured persons may become less cautious about their harmful or dangerous activities. All this resulted in increased health issues needing further health care.

What factors can affect your eligibility for health insurance?

Monthly premiums for plans change because of five factors—location, age, tobacco usage, plan type, and if the program includes dependents. 

Why is the demand for health care different from the demand for other goods and services?

Another aspect that distinguishes health care from most other commodities and services is cost and investment. Spending money on health today will benefit the customer in the future. Another critical trait of health care is its highly inelastic demand.

How does lack of insurance affect health care?

Inadequate health insurance coverage may have a detrimental effect on health. Adults who lack health insurance are less likely to obtain preventative care for chronic diseases like diabetes, cancer, and cardiovascular disease. On the other hand, health insurance cannot eliminate all barriers to care.

Why demand for health care is considered a derived demand?

Healthcare demand appears from the desire for health. People want healthcare to accumulate a more extensive “health capital” stock by customers. Individuals spend resources to consume and generate health so that most other things do not.

Is backdating insurance illegal?

To qualify for the best rate available at that age, you can backdate a life insurance policy by up to six months. While this may save you money in theory, you must remember that you will be responsible for the premiums for the months that the policy covers.

Bottom line

Health insurance demand results from individuals becoming ill or wounded; the government cannot change that. If a person is born with a chronic sickness or condition, no legislation can alter that fact.

Medical usage comes from individuals who have medical issues that they think might be resolved—at the very least, lessened by medical intervention. Legislation can assist in this by creating medical services accessible to those who need them but may not pay for them.

To obtain a product or service, you must first request it and demonstrate that you can afford it. Finally, establish a precise strategy for acquiring it.

In actuality, wants are limitless urges and inclinations for things and services. Consider buying something if it were more affordable or less expensive. 

Demand represents our strategy and ambition for meeting future demands. All this includes commodity pricing, linked commodity prices, and personal income. We also anticipated future prices, population, advertising, and consumer preferences.


Adam Grabois is an expert in all aspects of Insurance and Property with 20 years of experience. He is a licensed broker of all lines including property, casualty, life, and health. As a licensed adjuster, he is well-versed in all aspects of insurance, and he owns All Needs Insurance agency in Florida.

He attended Tufts University where he earned his undergraduate degree, followed by a Master's degree from Columbia University.

Adam shares his breadth of experience by helping many businesses and individuals manage risk and protect themselves financially. He now shares this with the audience of the "Pro Insurance Info" website.

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