Author Question: Downsizing may result in an increase in accounting costs. Indicate whether the statement is true or ... (Read 53 times)

Yi-Chen · **on:** Jun 30, 2018

Downsizing may result in an increase in accounting costs.
Indicate whether the statement is true or false

Question 2

An insurance company finds that it insured an adverse selection of largely ill patients. It is forced to increase insurance premiums to reduce losses. How does this aggravate the adverse selection problem?

xthemafja · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

True

Answer to Question 2

As insurance premiums increase healthy enrollees are more likely to drop out of the plan. They might opt for cheaper, less generous health insurance plans or for self-insurance. This tendency further aggravates the adverse selection problem.