To assist in ensuring adequate and affordable health care for all, the federal government has mandated that health insurers provide health insurance to all, regardless of their physical condition. Insurers may not reject coverage for preexisting health problems.
a. Explain why this mandate, standing alone, creates tremendous potential for adverse selection problems.
b. A second part of recent health care reforms is a mandate that every person must either obtain insurance through his employer or through the private market. Explain how this mandate reduces (i) adverse selection problems in general and (ii) the adverse selection problems discussed in part (a) in particular.