What is Adverse Selection?
Health insurance companies employ certain measures in order to screen out high-risk patients; simply put, these are prospective policy holders which have the highest probability of maximizing their insurance coverage due to pre-existing medical conditions. Adverse selection means that these high-risk people are screened and sometime, denied health coverage because of the state of their health. This is done because if the number of sick people with greater medical bills exceed the number of healthy people with relatively lower medical expenses, then the insurance company may not be able to manage the cost of treatment for all of their policy holders.