No one ever asks about this because few know about it and many small businesses, in ignorance, put themselves in a very dangerous position because of it.

An example of adverse selection is a company of let’s say ten employees, considers getting a health and dental plan and calls a meeting and asks who wants to go on the plan and six out of the ten agree to go on.

They all enroll and the employer signs a master application stating all eligible employees are enrolled – which is not true.

The reasoning of the employer is obvious.  He figures he is paying for it so he can do whatever he wants. The insurance company however considers this to be adverse selection because they fear that only the people with bad teeth or high prescription drug usage will go on the plan so their actuarial ratings will be off.  Now this happens a lot and most get away with it as long as it’s just small in and out health and dental claims.

My big concern however is what if there is a huge claim like an employee has a heart attack or is hospitalized in the states or somewhere else where running up a $500,000, plus bill, is not hard to do.  An employer should fear that a bunch of men and women in a boardroom somewhere, roll up their sleeves and ask if there is any way they can get out of this huge claim.

They could inquire if the employer here is “offside” meaning in breach of contract somewhere such as adverse selection.

They could force payroll records to be produced and find you are in adverse selection and therefore the contract is void.  I would guess that in such an event the amount would be negotiated down and settled.

Guess who could also be held liable by the employee?  Yes, you, the employer!  This problem is easy for me to circumvent for you through waivers and description of who is an eligible employee.

I will always make sure that none of my clients are ever in such a vulnerable position like that.

I hope you agree that ADVERSE SELECTION is important to know.

Contact Ron now for more information on this subject