Can adverse selection be avoided in a market for individual health insurance?

Adverse selection is a potentially significant problem in the individual (n ongroup) health insurance markets if states use regulations to restrict ins urance companies' ability to select whom they will insure. In 1993, New Jer sey implemented the Individual Health Coverage Program (IHCP), presenting a n opportunity to test for adverse selection when insurers' ability to selec t enrollees is severely restricted. The authors collected socioeconomic, de mographic, and health status data from a sample of 2,211 adults covered by IHCP policies and compared the IHCP enrollee characteristics with those of two control groups of New Jersey residents (uninsured adults and adults wit h employer group insurance). Adverse selection does not appear to have occu rred against the IHCP. However, the IHCP premiums were not cheap, and the f indings suggest that people who can afford to purchase individual insurance and do so are, on average, healthier than those who do not choose to enrol l, probably because the latter cannot afford insurance.