Why is adverse selection bad for a health insurance risk pool?

Adverse selection can also happen if sicker people buy more health insurance or more robust health plans while healthier people buy less coverage . This article will explain why adverse selection is bad for a health insurance risk pool, what health insurers do to avoid it, and how government programs can mitigate adverse selection issues.

What is adverse selection in health insurance?

Adverse selection in health insurance happens when sicker people—or those who present a higher risk to the insurer—buy health insurance while healthier people don’t buy it. Adverse selection can also happen if sicker people buy more health insurance or more robust health plans while healthier people buy less coverage .

How can health insurance companies avoid adverse selection?

There are several ways health insurance companies can avoid or discourage adverse selection. However, government regulations prevent health insurers from using some of these methods and limit the use of other methods.