everyone must buy insurance means that insurance companies do not need to worry that those with low risks

will avoid buying insurance. Since insurance companies do not need to fear adverse selection, they can set

their prices based on an average for the market, and those with lower risks will, to some extent, end up

subsidizing those with higher risks. However, even when laws are passed requiring people to purchase

insurance, insurance companies cannot be compelled to sell insurance to everyone who asks—at least not at

low cost. Thus, insurance companies will still try to avoid selling insurance to those with high risks whenever

possible.

The government cannot pass laws that make the problems of moral hazard and adverse selection disappear,

but the government can make political decisions that certain groups should have insurance, even though the

private market would not otherwise provide that insurance. Also, the government can impose the costs of that
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