Maryland Life and Health Insurance License Practice Exam

Which of the following is a key aim of health insurance underwriting?

1. To maximize the provider's profits

2. To ensure equitable service for all patients

3. To manage risk and prevent adverse selection

4. To determine the nature of medical treatments

The correct answer is: To manage risk and prevent adverse selection

The primary aim of health insurance underwriting is to manage risk and prevent adverse selection. Underwriting involves evaluating the health status and risks associated with individuals applying for insurance. By assessing an applicant's health history and other relevant factors, underwriters can determine the likelihood of claims being made, allowing the insurer to set appropriate premium rates and coverage options. Adverse selection occurs when individuals with higher risks are more likely to purchase insurance, while those with lower risks may opt out. This can lead to an unbalanced pool of insured individuals, increasing costs for the insurer and potentially threatening its financial stability. By effectively managing risk, underwriters help ensure that the insurance company can maintain a sustainable business model while providing coverage to those who need it. The other options do not directly align with the fundamental purpose of health insurance underwriting. While maximizing profits and ensuring equitable service are important for health providers and the healthcare system, they are secondary to the underwriting process. Determining the nature of medical treatments is also not relevant to underwriting; instead, it focuses on evaluating and classifying risks associated with applicants. Thus, managing risk and preventing adverse selection remain central to the underwriting function in health insurance.