Question

Affordable Care Act brought certain health insurance mandates with some exceptions. Since Affordable Health Care Act became law, between years 2010 and 2016, the number of uninsured people in the United States went down from 48 million to about 29 million. Assume that most of these 19 million people who gained health insurance access were young and healthy. Given this information and assumption, holding everything else that may affect the demand for health insurance constant, which one of the following statements regarding "adverse selection" is the most accurate?

   a.   Adverse selection is less likely to be an issue.

   b.   Adverse selection is more likely to be an issue.

   c.   Adverse selection is equally likely to be an issue: so there is no effect of information and assumption provided in the statement on severity of adverse selection.

   d.   The information and assumption presented in the statement will have an effect on adverse selection, but whether adverse selection is more likely or less likely to be an issue as a result is indeterminate.

Answer 1

Ans.- (A)

Adverse selection problem will occur when those people who are unhealthy pretend to be healthy and get a health insurance. But it is given above that most of these 19 million people who gained health insurance access were young and healthy. It means that the problem of adverse selection is less likely to be an issue here.

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