What role do waiting periods typically serve in health insurance policies?

Waiting periods in health insurance policies are specifically designed to mitigate adverse selection risks. Adverse selection occurs when individuals with a higher risk of needing health care are more likely to purchase insurance, leading to a disproportionately high number of claims compared to premiums collected. By including waiting periods, insurance companies aim to balance the risk pool. These periods can discourage individuals from obtaining coverage only when they anticipate needing care, thereby promoting a more stable and sustainable insurance model.

This mechanism helps to ensure that the insurance pool includes healthier individuals, which is crucial for maintaining lower premiums and ensuring the financial viability of the insurance plan. The other options presented do not correctly reflect the primary purpose of waiting periods in health insurance. For instance, waiting periods are not primarily used to delay the issuance of coverage or to ensure prompt claim processing. They also do not serve the purpose of allowing for policy upgrades.