Final answer:
In cafeteria-style benefits plans, adverse selection refers to the fact that employees most likely to select a benefit are also the most likely to use it, driving up benefit costs.
Step-by-step explanation:
In the context of cafeteria-style benefits plans, the term that refers to the fact that the employee most likely to select a benefit is also most likely to use the benefit, which tends to drive up benefit costs, is called adverse selection.
Adverse selection occurs when individuals who are at a higher risk of using the benefit, such as those with pre-existing health conditions, choose to enroll in the benefit plan. This leads to higher costs for the insurance company as they need to provide coverage for individuals who are more likely to incur expenses.
For example, in a cafeteria-style benefits plan offering health insurance, employees with chronic illnesses or in need of regular medical care may opt for the more comprehensive and expensive coverage, while healthier employees may select lower-cost options or decline coverage altogether. This can result in higher premiums or increased costs for the company sponsoring the benefits plan.