If There Is Adverse Selection in the Health Insurance Market

question 14

Multiple Choice

If there is adverse selection in the health insurance market then this means that:

• A)insurance companies can identify all the health problems facing its customers
• B)the price of health insurance may be greater than the costs of covering the average person's health risks
• C)people with severe but hidden health problems are less likely to buy health insurance than other people
• D)people in average health are encouraged to purchase health insurance

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Definitions:

Net Income

The total profit of a company after all expenses, including taxes, have been deducted from revenue.

Times Interest Earned

A financial ratio that measures a company's ability to meet its debt obligations by comparing its interest expenses to its earnings before interest and taxes.

Interest Expense

The cost incurred by an entity for borrowed funds.

Debt/Equity Ratio

A financial metric showing the balance between the amount of equity provided by shareholders and the debt incurred to support a company's assets.