Final answer:
Screening potential applicants can address uncertainty in the health insurance market, but it's not a complete solution and can exclude high-risk individuals from obtaining insurance. Employer-based group insurance and government mandates, like those in The Affordable Care Act, can mitigate adverse selection by pooling risks.
Step-by-step explanation:
Uncertainty in the health insurance market can be somewhat resolved by screening potential applicants, which is true to a certain extent. Screening, or differentiating customers into various risk groups, allows insurance companies to manage the adverse selection problem by adjusting premiums or denying coverage to high-risk individuals. However, this can lead to a situation where not all individuals can obtain insurance, particularly those who are high-risk.
An alternative to resolve this issue is by creating mechanisms such as employer-based group insurance plans or government mandates that require purchase of insurance, as seen with The Affordable Care Act, where coverage cannot be denied for preexisting conditions.
This reduces adverse selection by mixing low-risk and high-risk individuals, and by spreading the risks across a larger group. Additionally, some government regulations might require that insurance is provided to all, which can avoid the problem of adverse selection altogether.