One consequence of imperfect information in the health insurance market is that
A) less healthy individuals are more likely to buy insurance, driving up the cost of insurance for everyone.
B) the most healthy individuals are more likely to buy insurance, leaving the least healthy without access to health care.
C) health insurance increases the demand for health care and so increases the price of health care.
D) unhealthy individuals are denied health insurance.

Question

Quizplus · Accepted Answer

Imperfect information in the health insurance market may result in adverse selection, where individuals with higher health risks are more likely to purchase insurance. This can drive up the cost of insurance for everyone. Less healthy individuals may have a higher demand for insurance and may be willing to pay a higher price for coverage. As a result, insurers may need to charge higher premiums to cover the expected costs of the sicker population. This creates a market where those who are healthiest may choose not to buy insurance, leading to a pool of insured individuals who are on average sicker and more expensive to cover.

One Consequence of Imperfect Information in the Health Insurance Market