How can an insurance company reduce the adverse selection problem?

Question

Quizplus · Accepted Answer

An extensive insurance application process that screens out unhealthy individuals can help reduce the adverse selection problem. By only insuring large groups of individuals, the risk is spread out more evenly, further reducing adverse selection. This approach balances the need for a comprehensive screening process with the goal of insuring as many individuals as possible. Option A is incorrect because the adverse selection problem can be reduced, albeit not eliminated entirely. Option B is too restrictive and could lead to ethical concerns. Option C is not realistic because only insuring healthy individuals would limit the number of people who could be insured. Option D is also incorrect because hardly anyone being refused coverage wouldn't address the issue of adverse selection.

How Can an Insurance Company Reduce the Adverse Selection Problem