Thursday, September 26, 2019

REPOST: Adverse selection vs. Moral Hazard

President Trump has overhauled private health insurance, allowing businesses to offer cheaper plans that do not have as many benefits.  The Republicans applaud the change because they think it will lead to more coverage, and address the issue of moral hazard; Democrats criticize it because they think it will lead to adverse selection, raising costs for less healthy people who need more coverage.

Proponents of the new rule argue that AHPs will provide lower cost coverage for an estimated 4 million small business workers over the next 5 years including approximately 400,000 individuals who currently do not have coverage. Critics counter that without regulations requiring the inclusion of essential health benefits, such as maternity care, mental health, or prescription drugs, new AHPs will exclude important benefits and ultimately create significant and costly gaps in health coverage. They further argue that young, healthy individuals will flee the individual market for lower-cost AHPs, thereby leaving the sickest in the individual and small-group market to further drive up premiums.

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