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The Welfare State as Piggy BankInformation, Risk, Uncertainty, and the Role of the State$
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Nicholas Barr

Print publication date: 2001

Print ISBN-13: 9780199246595

Published to Oxford Scholarship Online: November 2003

DOI: 10.1093/0199246599.001.0001

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Problems With Medical Insurance

Problems With Medical Insurance

(p.50) Chapter 4 Problems With Medical Insurance
The Welfare State as Piggy Bank

Nicholas Barr (Contributor Webpage)

Oxford University Press

This chapter explores the wide‐ranging and well‐known problems of medical insurance, including uncertainty about future probabilities, adverse selection, and moral hazard, which lead to uninsurable conditions and upward pressures on medical spending. The chapter goes on to discuss methods of cost containment, and to assess different strategies: private funding plus private production, public funding plus public production, and public funding plus private (or mixed) production. A key conclusion is that attempts to adapt private arrangements end up looking like social insurance, in the sense that premiums are not based on individual risk and insurers are not allowed to exclude high‐risk applicants. A second key conclusion is that different strategies for financing health care have different but largely predictable problems.

Keywords:   adverse selection, cost containment, medical insurance, moral hazard, social insurance, uncertainty, uninsurable conditions

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