Question

what type of market failure caused creation of medicaid?

Answer 1

Asymmetric Information is one the main concern in healthcare industry. It often is marked by its two outcomes i.e. adverse selection and moral hazard, can greatly influence rising health care costs and inflation. There exist information asymmetries in the healthcare industry because generally the doctors know more about how healthcare services will affect patients than patients do. Consequently the latter can be folded into market failure due to lack of information. Each healthcare product is a unique with its own degree of monopoly power thus causing a deviation of healthcare market from perfect. Market failure arises due to inefficiency in the allocation of products and services. It leads to creation of Medicaid. In U.S., Medicaid is a state and federal public assistance health care program for the Americans who fall in the bracket of low-income regardless of their age. Medicare’s market leverage allowed for the purchase of medical care at cheap price compared to the private insurers, and the government uses this clout to reduce the prices as a way of cost controlling.