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What is information asymmetry?

What is information asymmetry?

Information asymmetry happens when one party in an economic transaction has greater relevant knowledge than the other party. This typically happens when the seller of a good or service possesses greater knowledge than the buyer. But the reverse situation also happens. Almost all economic transactions involve information asymmetries. For example, doctors typically know more about health care than their patients.

Health insurance is a complex consumer financial product fraught with information asymmetry. In health insurance, there are information asymmetries on both sides of the transaction. The buyer (the “policyholder“) often knows more about their personal health risk than the seller (the “insurance company”). But, the health insurance company often knows much more about the healthcare networks, the coverage details, and the technicalities of the health insurance policy. This makes shopping for, purchasing, and using it an incredibly stressful and anxiety-inducing experience.

Economically, information asymmetry isn’t a bad thing. Often, it signifies an efficient economy in which suppliers have specialized to provide greater value to buyers. But it can also lead to situations in which suppliers are able to take advantage of buyers, and vice versa.

As a healthcare consumer, it’s important to be aware of and to mitigate the negative consequences of health insurance information asymmetry. A good health insurance agent can help you do this with education, advice, and technology.

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