4 In Australia, health insurance laws include the following two provisions:

Insurance companies must offer health insurance to everyone who applies, and charge them the same price.

ii Everyone who earns more t han $90 000 (or $180 000 for families) must buy health insurance or pay a penalty, called the Medicare Levy Surcharge, for not doing so.

a Which of these provisions taken on its own makes the problem of adverse selection worse? Explain.

b Why do you think the provision you identified in part

(a) was included in the law?

c Why do you think the other provision was included in the law?