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Author: Bundorf, M. Kate ; Pauly, Mark V.
Working Paper: The Uninsured: Risk, Income, and “Affordability” of Coverage (PDF) ; July 2004

The nearly universal belief among policy makers is that risk rating of health insurance premiums makes health insurance unaffordable to high risks due to the high premiums for coverage they face in competitive health insurance markets. If this is true, the affordability of health insurance among high risks may be an important contributor to the large number of uninsured in the U.S. In this paper, we propose that higher premiums do not necessarily make high risks less likely to purchase health insurance and that the relationship between health risk and coverage may vary by income as well as the extent to which premiums are risk rated in a market. We test these hypotheses by examining empirically the relationship between health risk and the purchase of private health insurance. We find that the purchase of private health insurance consistently increases with health risk across both income and health insurance market. Our results provide little evidence that the affordability of coverage for high risks is a significant contributor to the large number of uninsured in the U.S.