Question

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.

Answer 1

Adverse selection problem.

Step-by-step explanation:

Adverse selection problem is described basically as a situation when both the seller and the buyer has different information about the particular good or commodity. Either the seller or the buyer will have more authentic and accurate information than the other which could leave the other without the accurate information at a disadvantage.