Final answer:
The two perils addressed by health insurance are moral hazard and adverse selection. Moral hazard refers to the situation where people with insurance may take more risks or engage in riskier behavior because they know they are protected by insurance. Adverse selection occurs when the people who are more likely to need insurance are the ones who purchase it, while those who are less likely to need insurance do not.
Step-by-step explanation:
The two perils addressed by health insurance are moral hazard and adverse selection.
Moral hazard refers to the situation where people with insurance may take more risks or engage in riskier behavior because they know they are protected by insurance. For example, someone with health insurance might be more likely to engage in unhealthy behaviors because they know their medical expenses will be covered.
Adverse selection occurs when the people who are more likely to need insurance are the ones who purchase it, while those who are less likely to need insurance do not. This can lead to higher costs for the insurance company, as they are covering a riskier population. For example, individuals with pre-existing medical conditions may be more likely to purchase health insurance, while those who are healthy may choose not to.