Which of the following is a problem that arises in a health insurance market?
A) There are a large number of buyers of various insurance programs.
B) A fierce competition exists between insurance providers.
C) A disproportionate number of high-risk individuals tend to buy insurance.
D) Only risk-averse individuals buy insurance.

Question

Quizplus · Accepted Answer

When a disproportionate number of high-risk individuals tend to buy insurance, it leads to adverse selection. This is because insurance providers have to charge higher premiums to cover the increased risk of paying out claims, which in turn causes low-risk individuals to drop out of the market. This creates a cycle where only high-risk individuals remain in the health insurance market, leading to higher premiums and reduced access to health insurance for low-risk individuals.

Which of the Following Is a Problem That Arises in a Health