Re:Lessons I Learned from Co-Founding a Tech Startup
by eleusive on Monday April 27, 2015 @05:38AM
(#9445199)
That's NOT what adverse selection is.
It's absolutely an adverse selection problem - insurance companies, as you say, can't necessarily price based on your existing health condition (not only because of regulations, but also because of asymmetrical information which is too costly, if not impossible to obtain).
As a result, healthy people will choose not to purchase health insurance, since due to the adverse selection problem, there doesn't exist a mutually beneficial transaction for both parties (insurance policies have to price for the average due to the lack of health data, which is economically disadvantageous for the healthy to take). And thus begins the adverse selection death spiral[1]
It's absolutely an adverse selection problem - insurance companies, as you say, can't necessarily price based on your existing health condition (not only because of regulations, but also because of asymmetrical information which is too costly, if not impossible to obtain).
As a result, healthy people will choose not to purchase health insurance, since due to the adverse selection problem, there doesn't exist a mutually beneficial transaction for both parties (insurance policies have to price for the average due to the lack of health data, which is economically disadvantageous for the healthy to take). And thus begins the adverse selection death spiral[1]
http://en.wikipedia.org/wiki/Death_spiral_%28insurance%29