Why adverse selection in health industry and not in others?
Debating on the health insurance system seems to last forever while the correct answer looks quite obvious by now after we have observed the results of the two extremely different health insurance systems around the globe. The US’s private health insurance and the government-operated system of the UK, Taiwan, etc.
Tim Worstall, in his post, tries to refute Paul Krugman’s column on health insurance.
It is true that adverse selection exists in any insurance system. I don’t think Krugman was saying adverse selection triggers the necessity of government-operated system. He was rather saying that there’s gotta be a government-operated system in some fields like health insurance.
Now, what makes health insurance (and/or auto insurance) different from other insurance?
The answer is quite obvious from our own experience from the prive health insurance system. It’s not the adverse selection per se but the adverse consequences from the adverse selection typical in the fields where the private system fails. The government-controlled insurance system was introduced in auto insurance because the adverse consequences were too much to ignore. Same thing with the health insurance. Krugman’s examples show that. David Himmelstein has more about it.
