The crux of the matter is what economists call the adverse-selection
problem. Uninsured people with pre-existing conditions often face tens
or even hundreds of thousands of dollars in out-of-pocket medical costs
annually. If insurers charged everyone the same rate, buying coverage
would be far more attractive financially for people with chronic
illnesses than for healthy people. And as healthy policyholders began
dropping out of the insured pool, it would become increasingly composed
of sick people, forcing insurers to raise their rates.
But higher rates make insurance even less attractive for healthy people,
causing even more of them to drop out. Before long, coverage would
become too expensive for almost everyone.
The adverse-selection problem explains why almost no countries leave
health care provision to unregulated private insurance markets. It also
predicts that requiring private insurance companies to charge the same
rates to everyone will make it prohibitively expensive for most people
to buy individual health insurance.
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