Suppose a health insurance company notes that almost all of its customers are at a high risk of illness or injury. This is an example of
A) public information.
B) perfect information.
C) a thick market.
D) an adverse selection problem.

Question

Quizplus · Accepted Answer

This is an adverse selection problem because the insurance company is seeing a trend where most of their customers are high-risk, meaning that people who are not high-risk are likely opting out of purchasing insurance. This leads to adverse selection for the insurance company as they are insuring a group that is more likely to require medical attention and therefore are likely to have higher healthcare costs.

Suppose a Health Insurance Company Notes That Almost All of Its