What is Gruber's theory on adverse selection?
My work on adverse selection, particularly in health insurance, highlights a fundamental market challenge. When insurance is voluntary, healthier individuals may opt out if premiums reflect the average cost of care, leading to a sicker pool of insured people and spiraling costs. Policies like individual mandates or subsidies are designed to counteract this by ensuring a broader, healthier base of insured individuals, thereby stabilizing the market.
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