Health Economics

adverse selection
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• All citizens who do not have insurance through work or another
public insurance program must buy insurance on a state‐wide private
• This is designed to combat adverse selection
• We will talk about this later but basically it means that only the sickest people
would buy insurance and then premiums would be very high
• You have to keep the healthy people buying insurance too!
• People with low incomes will receive subsidies
Extending insurance coverage to millions is not cheap
• Expected to cost about $200 billion per year
• To help pay, Medicare is cut by $50 billion per year, but cuts are not specified by the law
• Instead, cuts will be made by an independent board called IPAB
(Independent Payment Advisory Board) with an unusual amount of
• IPAB may rely on cost‐effectiveness studies to help make decisions (but cannot ration care)