Adverse selection

Adverse selection occurs when more people in poor health buy insurance than do people in good health. People in poor health are more likely to buy health insurance. They're also more likely to use health services. Thus, they cost the health plan more to cover than healthy people do.

To offset these costs, health plans try to keep the right mix of low-cost healthy members with high-cost unhealthy members. When more healthy people buy insurance, it helps spread the cost among people who use fewer medical services with those who need more care. That keeps premiums more affordable for everyone. Previously, health plans used medical underwriting to charge sicker people higher premiums than healthy people. Now that medical underwriting is illegal, the  requirement for everyone to buy health insurance helps reduce adverse selection.

WebMD Medical Reference Reviewed by Sarah Goodell on June 19, 2019
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