(Solved):Describe the problems faced by health insurance companies as a result of adverse selection and moral hazard. How do insurance companies try to reduce these problems? View Answer…

 

Question

Describe the problems faced by health insurance companies as a result of adverse selection and moral hazard. How do insurance companies try to reduce these problems?

 

EXPERT ANSWER

Adverse Selection- due to adverse selection, the risk of insurance companies increases. They end up paying more for the insured people than they had expected. This can cause problems if there are not enough reserves to cover the increased costs. To overcome adverse selection,

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