Final answer:
Option A. It is true that sickness funds are required to provide coverage without denying individuals, but insurers often practice risk selection to manage financial risks posed by adverse selection. Government regulations can dictate terms for purchasing insurance and covering individuals in an effort to balance market dynamics.
Step-by-step explanation:
The statement regarding sickness funds and their legal requirement to provide coverage without denying individuals is generally true. However, the issue of insurers engaging in risk selection is a complex one. Even though it might be illegal for sickness funds to deny coverage outright, insurers often find subtler ways to attract lower-risk individuals or avoid enrolling higher-risk individuals, a practice known as risk selection.
They do this because of adverse selection, which refers to the tendency for high-risk individuals to seek insurance, potentially leading to higher costs and premiums. This scenario imposes challenges for insurers because they must balance the need to provide coverage with the financial risks associated with insuring high-risk individuals.
Government laws and regulations can influence insurance markets and may require that individuals purchase insurance or that insurers cover all applicants without discrimination based on risk. The complexity of these dynamics speaks to the heart of market distortions caused by insurance offerings and the efforts to mitigate issues like adverse selection and maintain a sustainable health care financing system.