Related to the Economics in Practice on page 360: Insurance companies are interested in being legally allowed to obtain the results of genetic testing before deciding on issuing insurance policies to potential buyers, which would lessen the problem of ________ in the health insurance market.
A) moral hazard
B) market signaling
C) adverse selection
D) risk-loving

Question

Quizplus · Accepted Answer

Adverse selection occurs when individuals who are at higher risk of needing insurance are more likely to purchase insurance policies. In the context of health insurance, this means that individuals with genetic predispositions to certain illnesses may be more likely to purchase insurance, which could lead to higher costs for the insurance companies. By obtaining the results of genetic testing, insurance companies could more accurately assess the risk of potential policyholders and adjust their premiums accordingly, which would help reduce adverse selection.

Related to the Economics in Practice on Page 360: Insurance