An insurance company can prevent the adverse selection death spiral by requiring purchasers to have a medical exam. This will allow the insurance company to:
A) charge higher prices to healthy people.
B) prevent unhealthy people from purchasing health insurance.
C) prevent healthy people from purchasing health insurance.
D) charge higher prices to unhealthy people.

Question

Quizplus · Accepted Answer

Requiring purchasers to have a medical exam can help prevent unhealthy people with pre-existing conditions from purchasing health insurance. This allows the insurance company to better manage their risk pool and avoid the adverse selection death spiral. The insurance company cannot prevent healthy people from purchasing health insurance, as that would not be in their best interest. They may charge higher prices to unhealthy people once they have identified them through the medical exam.

An Insurance Company Can Prevent the Adverse Selection Death Spiral