Question

What are the two main ways to combat adverse selection?

a) Encourage insurers to avoid high-risk clients and limit coverage
b) Use risk adjustment and promote universal enrollment
c) Increase competition among insurers and encourage tiered pricing
d) Mandate community rating and implement government price controls

Answer 1

To combat adverse selection in the insurance market, insurers can either avoid high-risk clients and limit coverage or implement risk adjustment and promote universal enrollment.

Step-by-step explanation:

One of the main ways to combat adverse selection in the insurance market is to encourage insurers to avoid high-risk clients and limit coverage. By doing so, insurance companies can reduce their risk of attracting only those who pose high risks. Another way is to use risk adjustment and promote universal enrollment, which helps spread the risk across a larger pool of people. This ensures that insurance is available to everyone, regardless of their risk level.