Final answer:
Unhealthy workers would likely work for Duff Beer due to full health coverage, while healthy workers might choose Brawndo for higher wages, showing the effects of moral hazard and adverse selection. The Affordable Care Act and employer-based insurance in the U.S. market are ways to mitigate these issues.
Step-by-step explanation:
In the scenario described, unhealthy workers who face high healthcare costs would likely prefer to work for Duff Beer, as the firm covers all health insurance costs and provides insurance that covers all possible health issues. Healthy workers, who do not anticipate high healthcare expenses, might prefer to work for Brawndo if the higher wages compensate them sufficiently for the reduced health insurance benefits. This example illustrates problems of moral hazard and adverse selection in insurance markets. Adverse selection occurs when insurance buyers have more information about their risks than the insurance company, leading to a situation where only those with high risks find the insurance favorable.
One of the approaches to solving adverse selection in the U.S. health insurance market has been through employer-based insurance, which groups people with varying health risks, or through health exchanges under The Affordable Care Act. Government interventions, such as the Act's requirement for all Americans to purchase health insurance and preventing providers from denying individuals based on preexisting conditions, attempt to address the adverse selection and moral hazard problems in health care.