12. To prevent adverse selection, health and life insurance companies Question 12 options: a) charge the same premiums to all policyholders. b) require potential policyholders to submit medical records or submit to an examination, and may refuse to sell policies to people with certain pre-existing health conditions. c) charge lower premiums to policyholders with a higher risk of filing claims. d) always charge the same premiums to people regardless of certain pre-existing conditions.

12. To prevent adverse selection, health and life insurance companies Question 12 options: a) charge the same premiums to all policyholders. b) require potential policyholders to submit medical records or submit to an examination, and may refuse to sell policies to people with certain pre-existing health conditions. c) charge lower premiums to policyholders with a higher risk of filing claims. d) always charge the same premiums to people regardless of certain pre-existing conditions.

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter14: Transaction Costs, Asymmetric Information, And Behavioral Economics

Section: Chapter Questions

Problem 3.8P

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Similar questions

How might adverse selection make it difficult for an insurance market to operate?
In an insurance system, would you expect each person to receive in benefits pretty much what they pay in premiums or is it just that the average benefits paid will equal the average premiums paid?
1)Describe an example of moral hazard that we may run into in the real world. Think of something that is legal and not inherently lethal, yet still demonstrates elevated risk for the participant who would likely act safer if insurance or protection was not available. Explain why someone might take this risky action. What are the benefits to the risky behavior? In your response to two of your peers, explain what an insurance company may do to reduce the likelihood that an individual would take this risk. Keep in mind, that we cannot always just deny coverage if an individual is participating in the risky behavior.
24. Consider adverse selection in the car insurance market. Drivers are either risky or safe. The insurance companies cannot distinguish between the two types of drivers, but they know that 50% of all drivers are risky. Insuring a risky driver costs $3,000, while insuring a safe driver costs $1,000. The benefits of insurance is $4,000 for a risky driver and $1,500 for a safe driver. If insurers cannot observe the type of buyer they are insuring, what is the minimum equilibrium price of insurance? a. $1,000 b. $1,500 c. $2,000 d. $3,000 e. $4,000
4. What kind of liability insurance protects you now as an EMT and as a student paramedic in your clinical sites? 5. At the scene of a shooting, you can see a patient with slow, gasping respirations, but the police will not let you enter the crime scene. How will you feel? 6. Your patient is critical, and you cannot secure the airway. Medical direction tells you to divert because they have no ICU beds. You repeat the urgency of your patient's condition and are still told to divert. You elect to override the physician's order and transport to that hospital. Can you justify disobeying the physician's order! .
___ occurs when insurance companies structure plans that provide an incentive for healthier consumers to enroll while discouraging enrollment of higher-risk individuals a. Guaranteed renewability b. Cherry-picking c. Moral Hazard d. Asymmetric Information e. Adverse Selection
6. Suppose that there are two types of drivers: reckless and safe. Reckless drivers have a higher probability of accidents with an expected loss to the insurance company of $5000. Safe drivers have a lower probability of accidents with an expected loss to the insurance company of $1000. Insurer cannot distinguish between reckless and safe drivers but know that reckless drivers make up "B" proportion of all drivers. What single premium should the risk-neutral insurer charge? Assume that the insurance market is perfectly competitive. Is the above mentioned problem an example of Adverse Selection or Moral Hazard? Explain.
26) If an employee receives health insurance through his or her employer, the employer A) still withholds contributions for Medicare and Medicaid from the employee's paycheck. B) still withholds contributions for Medicare, but not Medicaid, from the employee's paycheck. C) still withholds contributions for Medicaid, but not Medicare, from the employee's paycheck. D) is no longer required to withhold contributions for Medicare or Medicaid from the employee's paycheck. 27) Which of the following is not part of the "individual mandate" provision of the Patient Protection and Affordable Care Act (ACA)? A) Individuals are allowed to opt out of the insurance program if they can prove they have no serious health issues and do so before the act fully takes effect in the year 2014. B) By 2016, fines for not having health insurance will be the greater of $695 per person or 2.5 percent of income. C) Beginning in 2014, individuals who do not…
Explain the purpose of insurance. If a mother purchases health insurance for her and her four (4) children, who is the policyholder, and who is (are) the beneficiaries?
2. Below is a market for health insurance, with 5 people. Their expected costs, risk premiums, and willingness to pay for insurance are given. The average expected costs are 92. a.Suppose an insurance company offers a premium equal to 92. Determine who will buy and won't buy at that premium (top chart to fill in). Find the insurer's revenue, expenses and profit at that premium (bottom chart to fill in). Then repeat for the higher premiums in periods 2 and 3. Expected Risk Period 1 Willingness Premium to Pay 22 Period 2 Period 3 Costs Premium=$92 Premium=$130 Premium=$180 Person 1 20 2 Person 2 40 5 45 Person 3 80 15 95 Person 4 120 30 150 Person 5 200 60 260 Total 460 Mean 92 Insurer Revenue Insurer Expenses Profit a. Over time, what is happening to the number and type of people in the market for insurance, and what is happening to insurer profits? +
1) Suppose incomes at sick-state and healthy-state become perfect substitutes and the probability to become sick is 0.3. Using a diagram, explain which insurance contract (full or partial) will maximize this client’s utility.
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