When more sick people—or those who have a high risk of becoming ill—purchase health insurance than healthier people, this trend is called adverse selection because those choosing health plans created adverse risk for health insurers. When more sick or high-cost people buy insurance overwhelming the number of healthier ones in the risk pool, premiums rise. Then, healthier people may drop out, driving up premiums even more. Adverse selection can lead to what’s called a death spiral for a health insurer.
