Economics: Can Policy Fix Health Insurance Equity?

In a purely private health insurance market, premiums are risk-rated: insurers set them according to actuarial cost, so high-risk individuals face a higher price than low-risk individuals. Diagrammatically, a single supply curve S meets two demand curves — inelastic Dhigh for high-risk buyers and elastic Dlow for low-risk buyers — producing two equilibria where Phigh exceeds Plow. Because the price mechanism allocates access by health status rather than need, and because high-risk individuals are disproportionately low-income, the bottom 20% of households spend 35% of disposable income on healthcare against just 5% for the top 20%. This violates vertical equity, since greater need translates into a greater financial burden, and may price high-risk individuals out of the market entirely — a clear market failure. Government intervention therefore becomes the central question: can a tax-funded NHS, or a mandate, sever the link between ability to pay and access, and restore both horizontal and vertical equity?