Adverse selection is a favorite explanation of why markets for health care can't work, and health care therefore needs to be provided by the government. Often, the proponents of this theory add a wrinkle: insurance companies spend huge amounts of money on trying to keep from treating people.
Alex Tabarrok points out a hole in this theory:
If insurance companies do avoid covering people who are "likely to need care," this suggests that the uninsured are unhealthy. But 60% of the uninsured are in excellent health (Table 10) (In fact, overall the uninsured are only slightly less healthy than the insured).
Henry Farrell voices the objection that immediately occurred to me.
But the statement '[Insurance companies] try to avoid covering people who are actually likely to need care' very obviously does not imply the statement 'All uninsured people are being refused coverage because they have expensive conditions.' The logical connection between the two implied by the 'contra Paul' bit is not, to put it mildly, clear to me. As a result, I am not sure what Alex's actual point is. Is he suggesting that the incentive problems that Paul identifies are in some sense unimportant?
But on reflection, I think Henry and I were wrong. I was very surprised to follow through to the table Alex Tabarrok links (from the Kaiser foundation, hardly a right-wing advocacy group) and find out that the percentage of the uninsured* who are in "fair" or "poor" health really isn't much larger than the percentage of the insured in those categories: 10.3% of the uninsured, versus 8.4% of the insured.
That is surprising because we would expect the uninsured to be sicker than the general population, even if the insurance companies were doing nothing to weed out the sick. Being uninsured is correlated with other things that are strongly correlated with poor health: being born in another (poorer) country; being too sick to work full time; little education; low SES.
Of course, it's also true that the population of the uninsured is correlated with something that's also correlated with good health: being young. But then, this sort of undercuts the adverse selection argument, and also the moral imperative of giving them health insurance. If you could reasonably afford health insurance by dropping down to a lower-priced cell phone plan and cutting back on your bar tab, you are not a national emergency.
So for the nonce, let's ignore all those confounding factors, and assume that without virulent machinations by the insurance companies, the population of the uninsured ought to mirror the population of the insured in health status. How many people are being pushed out of the insurance market because of their poor health status? It can't be many; there are only 4.6 million people without health insurance who report poor or fair health status. And not all of those people are very sick. I'd be hard pressed to call my health better than fair because of my asthma and my Hashimoto's Thyroiditis. But neither of those diseases costs my insurance company, or me, much.