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Adverse selection vs moral hazards in Insurance

Distinguish between adverse selection and moral hazards as they relate to the insurance industry.

Solution Summary

Adverse selection suggests that a person only buy health insurance if they are convinced the insurance will be beneficial after purchase. Someone in poor health, for example, may feel the need to purchase health insurance to offset medical bills that may incur. Opposite of this example is that young adults, in good health, typically do not believe purchasing health insurance is a necessary cost. "The moral hazard, as it relates to health insurance is a certain way of thinking about your medical costs concerning a health-related emergency when you know you are insured" (Jaffer, 2010, ΒΆ5).