Because people with hidden health problems are more likely to buy health insurance than are other people,
A) the price of health insurance reflects the costs of a sicker-than-average person.
B) the price of health insurance is too low, relative to the socially-optimal price.
C) people in average health may be encouraged to buy too much health insurance, relative to the socially-optimal quantity.
D) the Condorcet Paradox suggests that people who are sicker than average will ultimately buy more health insurance.

Question

Quizplus · Accepted Answer

This is known as adverse selection in the insurance market. Because people with hidden health problems are more likely to buy health insurance, insurance companies must charge higher prices to cover the costs of insuring a sicker-than-average population. This is reflected in the higher prices for health insurance.

Because People with Hidden Health Problems Are More Likely to Buy