An insurance company is looking to provide a full coverage health insurance plan to the 10 professors in the economics department at the University of Alabama. Seven of these professors are in great health and will incur no medical expenses this year. Six professors have chronic conditions which require $5000 of medical care per year for each professor. a. If the insurance company is looking to insure the entire group, what will be the actuarially fair premium it charges? b. If professors have the option to enroll in the insurance plan, what will be the profit to the insurance company if it charges the premium in part (a)? c. Name the economic phenomenon occurring in this example
An insurance company is looking to provide a full coverage health insurance plan to the 10 professors in the economics department at the University of Alabama. Seven of these professors are in great health and will incur no medical expenses this year. Six professors have chronic conditions which require $5000 of medical care per year for each professor. a. If the insurance company is looking to insure the entire group, what will be the actuarially fair premium it charges? b. If professors have the option to enroll in the insurance plan, what will be the profit to the insurance company if it charges the premium in part (a)? c. Name the economic phenomenon occurring in this example
Chapter7: The Market For Health Insurance
Section: Chapter Questions
Problem 5QAP
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An insurance company is looking to provide a full coverage health insurance plan to the 10 professors in the economics department at the University of Alabama. Seven of these professors are in great health and will incur no medical expenses this year. Six professors have chronic conditions which require $5000 of medical care per year for each professor.
a. If the insurance company is looking to insure the entire group, what will be the actuarially fair premium it charges?
b. If professors have the option to enroll in the insurance plan, what will be the profit to the insurance company if it charges the premium in part (a)?
c. Name the economic phenomenon occurring in this example.
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