Insurers anticipate this adverse job turnover dynamic. Nevertheless, insurers are expected to renew policies and may be reluctant or prohibited from increasing premiums rapidly. As a result, offered premiums for covering a previously uninsured firm are well above the initial expected costs for the firm’s worker’s current age and gender distributions. Such large premium loadings deter small firms from offering health insurance to their workers. A dynamic adverse selection problem emerges. Employers with favorable health risks are reluctant to offer insurance because the premium is too high to be attractive to the existing mix of employees. Furthermore, offering insurance may attract less healthy workers, worsening the expected.
