Consider a world composed of two types of people: those without preexisting conditions (N ) and the ones with preexisting conditions (C). People in group N get sick with probability N = 5%, while people in group C with probability C = 20%. Sick individuals incur a cost of $600. There are 50 people for each group. Each person has an income of $2, 000. Health insurance companies provide a plan that covers all costs above $200, that is, there is a $200 deductible. Individuals obtain utility from consumption u(x) = x