General Concepts
Adverse Selection
Adverse selection occurs when people with a greater likelihood of loss are more motivated to buy or maintain insurance, skewing the risk pool toward worse-than-average outcomes.
Last reviewed: May 2026 · Editorial methodology
Definition
Adverse selection arises from information asymmetry: the applicant knows more about their own risk than the insurer does. For example, someone who has already been diagnosed with a chronic illness is far more likely to purchase health insurance than a perfectly healthy person who feels invincible. If left unchecked, adverse selection causes premiums to rise because the pool fills with high-risk members, which then drives away healthier, low-risk members — a cycle known as a 'death spiral.' Insurers counter adverse selection through medical underwriting, waiting periods, pre-existing condition clauses, and mandatory enrollment windows. The Affordable Care Act addressed adverse selection in health insurance partly by requiring most Americans to maintain coverage and by prohibiting denial based on pre-existing conditions, funded by a larger mandatory pool.
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Cover Forge USA Editorial Team
Editorial Lead
This article was researched and written by the Cover Forge USA editorial team against federal sources (NAIC, CMS, FEMA, DOL, SSA, state DOIs) and standard policy forms. Bylines organize content by topic — they do not assert individual licensure. See our editorial-policy for details.
Reviewed 2026-06-14
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