Page 23 - Ebook health insurance IC27

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Q2. Write short notes on -
(a) Information Asymmetry - The Information available to the insurer and the insured

about each other is not perfectly transparent or complete. Insured often do not
fully understand the insurer's capabilities, or the exact interpretation of his contract.
Similarly, the insurer may not fully understand the exact risk status of a prospect,
and so may not price the risk correctly.
(b) Cherry picking or cream skimming - The Insurer's natural preference is for
lower risk proposers and there is reluctance to insure those with high risk. This
is also termed as cherry picking or cream skimming, i.e, simply choosing the
best.
(c) Adverse selection - Higher risk persons want to purchase more health insurance
than a healthy person with low risk. Insurers apply acceptance and pricing rules
to decide which risks they will accept and at what price through a process called
underwriting .
(d) Moral Hazard - Moral Hazard works at the insured's end, as well as the healthcare
provider's end. They are known as 'demand side' and 'supply side' moral hazard
respectively.
(e) Demand side moral hazard - Consumers seek or accept more health care
services than they would if the individual did not have health insurance.
(f) Supply side moral hazard -Health providers give more services than they
normally would if the individual did not have health insurance. Health insurers use

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