No Adverse Selection In Health Insurance

People who have the highest medical expenses are often the ones who do not buy health insurance. Adverse selection does not exist in medical insurance markets. It is risk adverse individuals, who take the best care of themselves, who are most likely to buy expanded coverage.

For decades, insurance companies have been pricing policies based on the belief that adverse selection comes into play among their customers. But [Michael] Keane, a professor of economics at the W. P. Carey School of Business, says it does not. There are no empirical data proving adverse selection, he says. Other factors are operating and, in fact, insurance companies often benefit from "advantageous selection," in which the best risks also are their best customers.

Read the complete article, "Adverse to whom? Insurance company fears of 'adverse selection' may be unfounded" here.