What is an incorrect statement about adverse selection and underwriting?

Health insurers operate within a regulatory framework that limits their ability to set underwriting provisions freely. While they do have some autonomy in designing their underwriting criteria, they must still adhere to laws and regulations that protect consumers from discrimination and ensure fair access to insurance. Therefore, the assertion that health insurers have unlimited power to set underwriting provisions is incorrect, as it overlooks these essential restrictions.

Understanding the other concepts strengthens the reasoning further. Adverse selection refers to the tendency of individuals with higher health risks to seek insurance more than those with lower risks, which inevitably affects risk pooling—this means that a pool with a higher proportion of sick individuals will face increased costs. Proper underwriting techniques are crucial for insurers to assess risk accurately and maintain solvency by balancing their risk pools effectively. In contrast, a statement implying unlimited power disregards the checks and balances embedded in insurance regulations designed to protect the insured population.