Moral Hazard and Adverse Selection: A Few Simple Graphs

The Affordable Care Act (ACA), including the Kynect exchange operating in this state, seeks to (1) extend health insurance to those who previously lacked it, and (2) increase the generosity of existing insurance policies. Understanding the economic impacts of the ACA, as well as various alternatives proposed across the political spectrum, require an intuitive grasp of moral hazard. Understanding why the law carries an individual mandate requires a similar grasp of adverse selection. 

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