Health Economics

In this week, we talked about three models about health insurance market: experience rating, adverse selection, and cream skimming. Your assignment for this week is:

Step 1: Read the following letter to the editor of the 8/30/2020 Chicago Tribune. Link: Get rid of adverse selection for health insurance – Chicago Tribune.pdf .Preview the document

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The letter says the following:

” Millions of Americans with past or current health problems have difficulty obtaining health insurance. The problem revolves around what insurers call “adverse selection.” Sick people cost insurers more than healthy people. If one insurer offered equally affordable policies to everyone, sick or healthy, sick people would gravitate to that company. The cost to insure all those sick people either would bankrupt the company or require the company to raise its rates. Healthy people, able to obtain cheaper coverage elsewhere, would change insurers. If insurers were precluded from considering health, there would be no adverse selection. … If insurers could eliminate the costs of investigating and record keeping, they actually might be able to lower rates.

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