Suppose ABC Health is a private health insurance company that offers an identical policy to all customers.Each customer pays a premium equal to the average consumer's annual medical expenses.This is a system that has the potential to fail because of the _____ problem.

Question

Quizplus · Accepted Answer

The given scenario describes the adverse selection problem, where people with higher healthcare needs are more likely to purchase insurance, while those who are healthy may choose to go without insurance. This leads to higher average medical costs for the insurance company, which they have to cover through premiums, ultimately leading to higher costs for all customers.

Suppose ABC Health Is a Private Health Insurance Company That