Final answer:
Employers can purchase medical and dental coverage more affordably than employees because insurance companies can secure lower rates through risk pooling and collective bargaining. This approach helps mitigate the adverse selection problem and is reinforced by the Affordable Care Act.
Step-by-step explanation:
Employers are typically able to purchase medical and dental coverage at a more affordable rate than individual employees due to the principle of risk pooling. By leveraging the collective bargaining power of a larger number of covered individuals, insurance companies can negotiate with healthcare providers for lower rates. This results in benefits for those insured and cost savings for the insurance company when they pay out claims. Employment-based insurance enables the mixing of various risk levels amongst employees which safeguards the insurance firm from the potential issue of adverse selection, where the risk of attracting clients with high health risks is reduced.
In the U.S., the health insurance market often involves employers as the primary distributors of health plans. The structure was further supported under The Affordable Care Act (ACA), which created a health exchange market sponsored by state governments and mandated that all Americans have health insurance, while preventing providers from denying coverage based on preexisting conditions.