adverse selection


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Adverse Selection

Clinical genetics An event in which an insurer avoids underwriting a person whose genetic profile indicates a high chance of suffering an "expensive" condition in the future—e.g., Huntington’s disease (Armed with such information, an insurance carrier may deny coverage—i.e., adversely select—a person with a high risk of suffering the disease in question; alternatively, that person may take out a large insurance policy on standard terms).
Health insurance The tendency of those with greater-than-average health risks to apply for, or maintain, insurance coverage.
Managed Care
(1) A stance adopted by health care insurers, which fiercely compete among themselves to insure the healthiest and wealthiest segment of a particular population, and thus adversely select the population which they target for selling insurance policies.
(2) The selection of a health plan, whether indemnity or managed care, over other plans by those enrollees who are more likely to file claims and use services, causing an inequitable proportion of enrollees requiring more medical services in that plan.
Segen's Medical Dictionary. © 2012 Farlex, Inc. All rights reserved.

adverse selection

Managed care
1. A stance adopted by health care insurers, which fiercely compete among themselves to insure the healthiest and wealthiest segment of a particular population, and thus adversely select the population which they target for selling insurance policies. See 'Safety net' hospital.
2. A health plan, whether indemnity or managed care, is selected over other plans by enrollees who are more likely to file claims and use services, causing an inequitable proportion of enrollees requiring more medical services in that plan.
McGraw-Hill Concise Dictionary of Modern Medicine. © 2002 by The McGraw-Hill Companies, Inc.

adverse selection

The enrollment in a health plan of those who are sicker or use more health care services than the general population.
See also: selection
Medical Dictionary, © 2009 Farlex and Partners
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These regulations alone need not induce adverse selection. However, they could exacerbate adverse selection in the presence of community rating regulations, because in the presence of both regulations insurers must accept all comers and charge them the same price.
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The concept of adverse selection argues that individuals who are at high health risk are more likely to purchase health insurance than those who are considered at low risk.
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For example, Kim (1985) developed an adverse selection model in which car owners' maintenance and upkeep decisions affected the quality of used cars.
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Related research on adverse selection and capital structure has considered convertible securities; e.g., Brennan and Kraus (1987) show that firms with low variability in expected returns are attracted to convertible securities.
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The third section of the book examines various aspects of risk classification needed to induce some degree of (weak) adverse selection, beginning with why a particularmethod may lead to suboptimal loss coverage.
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Underwriter minimize the effects of adverse selection by carefully selecting the applicants whose loss exposures they are willing to insure, charging appropriate premiums that accurately reflect the loss exposures.
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The classic example of a market for used cars highlights the market failure associated with adverse selection. In this example, there are uninformed consumers who cannot tell low-quality cars (lemons) from high-quality cars (peaches).
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Another insurance geek term, adverse selection is something you're unlikely to come across unless you actually work in insurance.
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Before 2014, health insurers have often required employers to meet minimum participation requirements to meet their underwriting requirements and avoid adverse selection. This practice is no longer permitted.
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