Because a small fraction of individuals account for a large share of total health expenditures, insurers gain more by excluding high-cost people from coverage than by efficiently managing the care of enrollees. The incentives for insurers to avoid high-cost and high-risk enrollees affect not only the likelihood of health insurance coverage for the high-risk population, but also the cost and accessibility of coverage overall in the small-group and nongroup private health insurance markets. This paper identifies public policies that might address these problems in private health insurance markets more effectively and delineates the advantages and disadvantages of each.