Arizona Health Insurance Practice Exam

Health insurance companies can effectively minimize the risk of adverse selection by implementing waiting periods for certain benefits. Adverse selection occurs when individuals with a higher risk of needing medical care are more likely to seek insurance than those at lower risk. By incorporating waiting periods, insurers can discourage those who may only want coverage for specific, high-cost services, knowing they will have to wait before those benefits become available. This encourages a more balanced risk pool, as individuals are less likely to enroll solely to cover anticipated medical expenses if they know they won't have immediate access to certain benefits.

In contrast, guaranteeing coverage to all applicants can lead to a higher likelihood of attracting those who may anticipate needing extensive medical care, thereby increasing the chances of adverse selection. Setting higher premiums for everyone may not effectively target the issue, as it does not differentiate between high and low-risk individuals and could drive away healthier applicants. Reducing coverage options might lead to less comprehensive care, but may not specifically address the underlying risk dynamics of adverse selection effectively. Therefore, implementing waiting periods is a targeted strategy that balances risk across the insured population.