Question

Define and discuss: Adverse Selection and Favorable Selection What implications does Adverse Selection have on Medicare, the private individual market, the employer-sponsored market, consumer directed health plans, and even the ACA?

Answer 1

Answer :

Adverse selection :

Adverse selection is a term commonly used in economics ,insurance and risk management that describes a situation where market participation is affected by asymmetric information .

It can be defined as strategic behaviour by the more informed partner in a contract against the interest of the less informed partners .

In health insurance field ,this manifests itself through healthy people choosing managed care and less healthy people choosing more generous plan.

Favourable selection : it means beneficieries who cost less than average ,after adjusting For certain demographic and clinical characteristics ,disproportionately enrolled in MA , while those who cost more than average have disproportionately remained in traditional medicine .

Implications of