Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Chapter 14, Problem 8P
To determine
The problems faced by the health insurance because of the adverse selection and moral hazard and the ways in which the insurance company tries to minimize these problems.
What are the problems faced by health insurance companies due to adverse selection and moral hazard? Discuss how they try to reduce risk.
Concept Introduction:
Asymmetric information is lack of information where one party has an advantage over the other and they use it to their economic advantage.
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- TABLE 4-VARIOUS MEASURES OF PREDICTED ANNUAL USE OF MEDICAL SERVICES, BY INCOME GROUP i) ii) Plan Likelihood of Any Use (Percent) 82.8 Free Family Pay 25 Percent 50 Percent 95 Percent Individual Lowest Third Mean 50 Percent 95 Percent Individual Deductible Expenses (1984 $) Free Family Pay 25 Percent 50 Percent 95 Percent Individual Deductible 71.8 64.7 61.7 10.03 9.08 8.77 9.26 Deductible 65.3 Likelihood of One or More Admissions (Percent) Free Family Pay 10.63 25 Percent 788 680 610 581 Income Middle Third Mean 87.4 609 80.1 76.2 68.9 73.9 10.14 8.44 8.06 7.38 9.44 736 588 550 494 Highest Third Mean 594 90.1 84.8 82.3 73.8 79.1 10.35 7.97 7.77 7.07 9.88 809 623 590 527 Significance Tests ton Contrast of: 670 Middle vs. Lowest Thirds 4.91 5.45 4.35 3.96 6.09 -0.91 -2.95 -1.78 -2.79 0.31 -1.78 -3.17 -1.89 -3.09 Highest vs. Lowest Thirds 5.90 6.28 4.86 4.64 7.09 -0.35 -2.75 -1.66 -2.46 -0.57 Assume average income in the bottom, middle, and top income terciles make $15,000, $50,000, and…arrow_forwardIn 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?arrow_forwardWhy is it difficult to measure health outcomes?arrow_forward
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