Ace the Illinois Health Insurance Exam 2025 – Insure Your Success Today!

Adverse selection refers to a situation in health insurance where individuals who are at a higher risk of needing medical care are more likely to purchase insurance or choose more comprehensive coverage than healthier individuals. This occurs because those with pre-existing conditions or other health concerns recognize their greater potential for medical expenses and thus by securing insurance, they aim to protect themselves from high costs.

As a result, this phenomenon can lead to a disproportionate number of higher-risk individuals in the insurance pool, which can significantly increase the overall costs for the insurance provider. When insurance companies face higher claims than anticipated, they may respond by raising premiums. This, in turn, exacerbates the problem, as healthier individuals may decide it’s not worth paying high premiums and opt out of purchasing insurance altogether, leaving a pool of insured individuals that is increasingly skewed toward higher risk.

This situation highlights the importance of balancing risk in health insurance pools and why many insurers implement strategies to mitigate adverse selection, such as mandatory enrollment periods or health assessments at application.