This paper traces the evolution of economists' views about risk segmentatio
n in health insurance markets. Originally seen as a desirable goal, risk se
gmentation has come to be viewed as leading to abnormal profits, wasted res
ources, and inefficient limitations on coverage and services. We suggest th
at risk segmentation may be efficient if one takes an ex post view (i.e., a
fter consumers' risks are known). From this perspective, managed care may b
e a much better method for achieving risk segmentation than limitations on
coverage, The most serious objection to risk segmentation is the ex ante co
ncern that it undermines long-term insurance contracts that would protect c
onsumers against changes in lifetime risk. (C) 2000 Elsevier Science B.V. A
ll rights reserved.