As an economic situation, market failure refers to an economic situation characterized by the inefficient distribution of services and goods within a free market. In the healthcare sector, a market failure entails inefficiency in service delivery and distribution of goods. Externalities entail the selected form of market failure explored in this case. Dewar notes that externalities can lead to inefficiency in the healthcare sector (p.75). The role of externalities in enhancing inefficiencies as the external costs fail to reflect the value of services offered (p.75). The value of services yet to be offered within the healthcare sector fails to reflect on such costs.

Taxation, more precisely sin taxes, is one of the healthcare issues that can be addressed and explored with the aid of market failures (distinctively using externalities). In a 2020 article in the New York Times, Austin Frakt uses the example of Obamacare to show the impact of mandatory taxation in reducing the cost of medical coverage. Frakt (1) states that Sin tax, as the article explains, entails taxing unhealthy habits to encourage individuals to show a willingness and commitment towards adopting healthy habits and living conditions (p.1). Smoking is an example of an unhealthy habit that is mentioned in the ACA as taxable.

Furthermore, the American healthcare system’s externality that relates to this issue of mandatory taxation is reliability and complete coverage. Frakt (1) states that the value that patients and beneficiaries of the Affordable Cara Act expect is complete and reliable coverage (p.1). Efficient insurance coverage is characterized by limited interferences such as unanticipated taxes and charges that limit people’s ability to access the proper medical care they deserve and expect. On the same note, there is a need to ensure that the insurance coverage for patients is affordable, as was stipulated in the fundamental features that defined this issue. Austin Frakt’s article (1)  argues from an economic perspective as his remarks are based on professionals’ views within the sector of taxation (p.1)

In this case, externality entails seamlessness in transition for proper care with limited interference and without overcharge in the name of sin taxes. Addressing the issue of incidental taxation charges can be addressed if it is also considered the value in the costing of medical coverage. There should be a willingness to create a spectrum that is an accurate representation and indication of the features and habits of the consumers. The healthcare market in the United States depends on its medical coverage dynamics. Articulation of mandatory taxes with an outline of the aspects of sin tax would immensely help address this externality

TASK
There are, thus, a policy intervention to address a market failure. Maybe you can reframe your contributions to address the task for this part of the assignment more clearly – identifying one of these markets where there is market failure and outline why/how the market fails; then describe how a Government can react to address the market failure…