Why does an adverse selection spiral develop

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Reference no: EM131021243

An article in the Economist magazine contains the following description of the "classic adverse selection spiral": "because [health insurance] premiums go higher, healthy people become even less likely to buy insurance, which drives premiums higher yet, and so on until the whole thing winks out. . . ." Why does an adverse selection spiral develop? What steps can insurance companies take to avoid it? Source: "Romney on Health Care: To Boldly Go Where He Had Already Been Before," Economist, May 13, 2011.

Reference no: EM131021243

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