Reducing Adverse selection with cafeteria plan?

A cafeteria plan, also known as a flexible benefits plan, can help reduce adverse selection by allowing employees to choose benefits that best fit their individual needs. This tailored approach minimizes the risk of higher claims from those who may require more costly benefits, as healthier employees may opt for less expensive or minimal coverage. By providing a variety of options, the plan encourages broader participation across different employee Demographics, leading to a more balanced risk pool and ultimately lowering costs for the employer. Additionally, it helps in aligning benefits with employee preferences, increasing overall satisfaction and engagement.