Community Rating and Adverse Selection Are Somewhat Related Concepts in Insurance

Multiple Choice

Community rating and adverse selection are somewhat related concepts in insurance policy analysis.Which of the following are true regarding adverse selection:

A) given equal insurance premiums across groups, the most costly households will tend to buy insurance, while the least costly households will not.
B) adverse selection limits rate differences to selected categories, which does not allow insurance companies to charge each group according to its expected cost.
C) only the sickest or most dangerous are likely to buy insurance.
D) adverse selection refers to bad choices among some individuals.
E) a and c are both correct.