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Home > Liberal Moments(SM)
#12. A Market Failure: Health Insurance
by Bob Powell, 7/6/07
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Here's the Liberal Moment (SM) Handout on "A Market Failure: Health Insurance."

Health insurance is a prime example of how "free market" failures are behind our major social problems. That's because these problems are a result of conditions that are dynamically complex (see What is Systems Thinking?).

As John Sterman writes in his Business Dynamics, Systems Thinking and Modeling for a Complex World (2000) textbook, "... imperfections create feedbacks that sometimes overwhelm the negative loops normally balancing supply and demand, leading to inefficiency or even to complete failure of the market."

For health insurance, the market failure is primarily due to what's known as "adverse selection." Adverse selection occurs in situations for which there is "asymmetric information." In this case, it's that you know more about the status of your health than do the insurance companies.

Over 46 million persons in the U.S. were without health insurance in 2005 and the number is increasing steadily. Over 11 percent of the children, over 8 million, were not covered. The U.S. "system" is failing.

For why, see this Liberal Moment (SM) Handout. For more extensive explanations, see Market Failures: Health Insurance & TABOR and Health Care Dynamics.

URL: http://www.exponentialimprovement.com/cms/healthinsur.shtml

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