Tito's Blog

Can A Free Market Affected By Adverse Selection, Asymmetric Information And Chronic Correlation Offer Real Insurance?

Interesting post by James Kwak on Baseline Scenario on health insurance, risk, adverse selection, asymmetric information, free markets and correlation.

Once you lose your employer-based coverage, for whatever reason, you’re in the individual market, where, you may be surprised to find, you have no right to affordable health insurance. An insurer can refuse to insure you or can charge you a premium you can’t afford because of your medical history. That’s the way a free market works: an insurer would be crazy to charge you less than the expected cost of your medical care (unless they can make it up on their healthy customers, which they can’t in the individual market).