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.

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Definitions:

Real Wages

Real wages refer to wage earnings adjusted for inflation, representing the purchasing power of a person's earnings in terms of the goods and services they can buy.

Dual Labor Market

A theory of the labor market that suggests it is divided into two segments: the primary market, which offers good jobs and the secondary market, known for poor working conditions and low pay.

Primary Market

A financial market where new securities are issued and sold for the first time to investors.

Secondary Market

A marketplace where investors buy and sell securities or assets from other investors rather than from issuing companies directly.