An implication of asymmetric information in the insurance market is that:
A) insurance comparaes have perfect konowlede about the health problems of those who purchase insurance
B) the price of health insurance may reflect the costs of a healthier-than-everage person
C) peaple with preater hidenen health prablems are mare ligely to buy health insurance than other people
D) people in average health are encauraged to purchase health insurance

Question

Quizplus · Accepted Answer

Asymmetric information means that one party (in this case, individuals seeking insurance) has more information about their health status and risk level than the other party (insurance companies). This means that people with greater hidden health problems are more likely to seek out and purchase insurance because they know they will need the coverage. As a result, insurance companies may raise prices to cover the increased risk of insuring these individuals, which can lead to a phenomenon known as adverse selection. This means that the healthiest individuals may opt out of purchasing insurance because the prices are too high, leaving only those with higher risks in the insurance pool.

An Implication of Asymmetric Information in the Insurance Market Is