Question

Bill's employer offers a new health insurance benefit that covers preventive and cosmetic dental services, including orthodontic care, for employees and their family members. If Bill knows his children need extensive orthodontic care, he will buy the policy.
This is an example of moral hazard. True or False?

Answer 1

The given statement is FALSE.

Explanation:

This is an example of adverse selection.

Adverse selection applies to a case in which the purchasers and distributors of the insurance policy don't have the same details at their fingertips. A typical definition of health insurance is where a person wants to learn if he is ill and in need of health coverage before paying for a health insurance package.

Examples of adverse selection in life insurance involve cases when a person with a high-risk career, such as a racing car driver or someone dealing with weapons, obtains a life insurance policy without the need for an insurance provider realizing that they have a risky position.