The Adverse Selection Death Spiral Occurs When Private Insurance Companies

question 119

Multiple Choice

The adverse selection death spiral occurs when private insurance companies:

• A) charge higher-than-average prices for health insurance, which in turn drives off healthy individuals and leaves only sicker, high-cost individuals, resulting in yet higher premiums the following period.
• B) find themselves with only healthy individuals to insure.
• C) offer health insurance at average cost, which results in losses to the company.
• D) refuse to insure very sick individuals.

---

Definitions:

Consolidated Expenses

Expenses that arise from combining the financial statements of a parent company with its subsidiaries, presenting the financial performance as if they were a single entity.

Reportable Segment

A component of an enterprise for which separate financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources.

External Customers

Individuals or entities that purchase goods or services from a company but are not part of the company itself.

Revenue

Income arising in the course of an entity’s ordinary activities.