Adverse Selection
Definition
Adverse selection refers to a situation in which individuals
are able to purchase health insurance at a premium
that is below actuarially fair premiums. Adverse selection
occurs because of information asymmetries: consumers
are better informed about their health status than
health insurers are. The consequence of adverse selection
of unregulated health insurance markets is market
instability.
Tags: adverse selection definition, consequence, consumers, health insurance, health insurers, health status, information asymmetries, insurance, insurance markets, market instability, premiums