The Problem With Private Health Insurance

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Paul Krugman says that in a private insurance market, insurance companies will do their best to avoid taking on sick people as customers.  Alex Tabarrok disagrees:

If insurance companies do avoid covering people who are “likely to need care,” this suggests that the uninsured are unhealthy.  But 60% of the uninsured are in excellent health (Table 10)….

To be sure, this doesn’t mean that being uninsured is not a problem but, contra Paul, it does mean that insurance companies would be willing to cover most of the uninsured at the same rates as the insured if the uninsured could or would pay those rates.

Color me perplexed.  That first sentence doesn’t compute at all, and the rest doesn’t make sense either.  Sure, insurance companies are willing to cover “most” of the uninsured.  That was Krugman’s point.  The problem is that they won’t cover the 40% who aren’t in excellent health, and those 40% account for most of our healthcare expenses. That’s perfectly reasonable behavior on their part, but it’s also a pretty big problem for anyone who wants a solution to more than a fraction of the problem.

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