Final answer:
The process used by insurance companies to pay, deny, or adjust claims based on coverage is called adjudication. It is a critical part of managing insurance risks, including adverse selection, and is an integral aspect of insurance administrative costs.
Step-by-step explanation:
The term used by the insurance industry that refers to the process of paying, denying, and adjusting claims based on patients' health insurance coverage benefits is B. Adjudication. During the adjudication process, the insurance company evaluates a claim to determine its validity and decides on how much of the claim will be paid out. This process involves a careful review of the patient's coverage, the services provided, and any other pertinent information, such as preauthorization requirements.
Insurance companies face risks from adverse selection, which occurs when buyers of insurance have more knowledge about their health risks than the insurance company. This can lead to lesser risks avoiding overpriced insurance, while greater risks look to the insurance as a good deal. Additionally, insurance companies have sizeable administrative costs related to processing insurance claims and running their business which are secondary to the claims payments themselves.