An insurance company can prevent the adverse selection death spiral by selling to groups of people such as groups of employees in a workplace. This will allow the insurance company to:
A) increase the chances that both healthy and unhealthy people will sign up for coverage.
B) increase the chances that only healthy people will sign up for coverage.
C) force both healthy and unhealthy people to sign up for coverage.
D) charge higher prices because the employer will pay the premiums.

Question

Quizplus · Accepted Answer

By selling insurance to groups of people in a workplace, the insurance company will have a larger pool of potential policyholders, which increases the chances of both healthy and unhealthy people signing up for coverage. This reduces adverse selection and prevents a death spiral.

An Insurance Company Can Prevent the Adverse Selection Death Spiral