Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 22 - Part VII - Frontiers of Microeconomics - Problems and Applications - Page 479: 4

Answer

The rule would hurt those who have the virus, and this rule would help those who don't have the virus. Since those who do have the virus would have to tell the health insurance companies they have the virus, this process of screening would likely increase the premiums for those who have the virus (and decrease the premiums for those without the virus).

Work Step by Step

The policy would likely increase the number of people without health insurance since insurers would have to increase premiums to cover the increased costs for the people insured under the policy. The problem of adverse selection would be exacerbated in the marketplace for health insurance. The insurance companies would increase the premiums for the policies, thus pushing some people out of the market for insurance. This would not be a good policy since fewer people would be insured and forces people to signal to the insurance companies their health.
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