How can individual health plans use adverse selection to their advantage?

Without underwriting, individual coverage applicants on average cost 40% more than applicants for small group coverage. While the individual market provides insurers more opportunities to take rating actions and to improve their competitive positions, it also presents more risks than group insurance since individual health insurance applicants are collectively less healthy and have greater variance in their claim costs than applicants in other markets. For these reasons, the individual market is especially susceptible to adverse selection.

While this represents a clear risk for individual insurers, it also presents a competitive opportunity. Making market-sensitive adjustments to the underwriting process, structure of family contracts, and rescission rules can provide a significant competitive advantage.

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