The Uninsured: Adverse Selection Problem or Distribution Problem?

In his recent post on health care and insurance Paul Krugman writes:

[Insurance companies] try to avoid covering people who
are actually likely to need care.

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) (In fact, overall the uninsured are only slightly less healthy than the insured).

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. In Paul's story there is a market failure, in the latter story health insurance is expensive and some people don't buy it.  The difference matters because the wrong diagnosis will almost surely lead to the wrong treatment.

Addendum: McArdle nicely takes the time to follow the logic.


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