Friday, February 19, 2010

Krugman on health insurance and individuals' opting out

Citing the WellPoint story in California, today Paul Krugman explains why it might be a problem in insurance markets if people are free to choose whether or not to insure. Anybody who believes his or her probability of an adverse event is temporarily low would find it profitable to drop coverage, leaving the covered pool comprising relatively more people who expect to file claims. In the recession, some Californians have chosen to drop health insurance, so WellPoint has responded by raising premia on those remaining, because they are sicker.