Becker on Adverse Selection via Regulation
By Bryan Caplan
The problem of adverse selection: Insurance companies can’t perfectly tailor rates to risk. The standard government “solution”: Forbid insurers from tailoring rates to risk. Yet another example, courtesy of Gary Becker:
Since private insurance companies are not allowed to charge higher
premiums to the obese because that is considered discrimination, largely under
the Americans with Disabilities Act, the higher cost of obesity paid by
privately insured persons can hardly be called an “externality”, unless it is
considered an externality from government policy.