Adverse Selection in Health Care

Adverse selection in healthcare occurs when individuals with a higher risk of needing medical care are more likely to purchase insurance, while healthier people opt out. This imbalance causes insurance pools to have a larger share of high-risk members, leading to increased costs for insurers. To cover these costs, insurers may raise premiums, which can discourage healthier individuals from buying coverage, further exacerbating the problem. Essentially, adverse selection undermines the fairness and stability of health insurance markets, making it more challenging to provide affordable coverage for everyone.