Adverse Selection in Health Insurance Markets: A Classroom Experiment

Ashley Hodgson ()

The Journal of Economic Education, 2014, vol. 45, issue 2, 90-100

Abstract: Adverse selection as it relates to health care policy will be a key economic issue in many upcoming elections. In this article, the author lays out a 30-minute classroom experiment designed for students to experience the kind of elevated prices and market collapse that can result from adverse selection in health insurance markets. The students should come away from the experiment understanding why adverse selection leads to high prices on good quality insurance and why it forces healthy individuals into low quality plans. Additionally, the experiment helps students think about the market characteristics that make health insurance particularly vulnerable to problems of asymmetric information. Finally, the experiment connects the adverse selection problem with key features of the 2010 Patient Protection and Affordable Care Act.

Date: 2014
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DOI: 10.1080/00220485.2014.889931

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