The role of government in health insurance markets with adverse selection

This paper analyzes the welfare economics of three arrangements for purchasing health insurance: competitive markets in which consumers are free to choose among options with different levels of coverage and prices; systems with compulsory partial pooling which permit private firms to sell supplementary coverage; and government-run pools that purchase comprehensive coverage at a single price for all consumers. Competitive insurance markets are assumed to face the problem of 'adverse selection'. This refers to a situation in which the insurer cannot observe characteristics of individuals that affect the cost of insurance and that are known to the individuals. Competitive markets with adverse selection are not efficient because low risks cannot purchase comprehensive insurance coverage. However, government-run pools with comprehensive coverage are an inefficient solution to the problem of adverse selection. Compulsory partial coverage may represent an attractive alternative to both competitive markets and comprehensive pools. We discover two situations when government intervention of this type will succeed: when there are not many high risks in the population, and when the risk types are similar. We discuss the implications of these results for health insurance programs in several countries. Our results also have implications for the allocation of public funds for disease-prevention projects. A project targeted at high risks will produce external benefits for low risks, even though they are not directly affected by the program. However, a successful project might eliminate the market for private insurance; in this case the government should consider mandating partial insurance coverage.     

Response selection deficits in frontal excisions

We compared the performance of patients with frontal excisions, patients with temporal excisions and controls in tasks involving speeded choice responses in which a number of variables were manipulated including: perceptual difficulty, stimulus and response set-size, associative complexity, and spatial stimulus-response compatibility. Response times were sensitive to all manipulations but did not show any group differences. The error rates of the three groups were equally affected by perceptual difficulty and response set-size but frontals were preferentially affected by spatial S-R compatibility, associative complexity, and the number of stimuli per response. The results are consistent with a basic deficit in response selection processes which could underly many problems produced by frontal lesions.