la. Suppose a particular population has two kinds of health risks, high and low. Let the expected annual health care costs for the high risk be $10,000, and for the low risk, half that. If there are twice as many low risk as high risk individuals, and if the one insurer's administrative load is 20%, what would the community rated premium be if everyone is compelled to and able to buy health insurance? Note: administrative load can be construed as the amount that the insurer has in costs to run the plans above and beyond the "health care costs." a. $7500 b. $6000 c. $12,000 d. $8000 2a. Now suppose insurance rules are changed to permit a new insurer (B) to enter this marketplace and be allowed to exclude the high risk due to pre-existing condition exclusions while the other incumbent insurer (A) is forced to still charge a community rate (as in the ACA). Assuming loads remain at 20% in long run equilibrium, what would the premiums be in each market, (low risk, high risk)? a. $5000, $10,000 b. $6000, $12,000 c. $7500, $15,000 d. $8000, $11,000
la. Suppose a particular population has two kinds of health risks, high and low. Let the expected annual health care costs for the high risk be $10,000, and for the low risk, half that. If there are twice as many low risk as high risk individuals, and if the one insurer's administrative load is 20%, what would the community rated premium be if everyone is compelled to and able to buy health insurance? Note: administrative load can be construed as the amount that the insurer has in costs to run the plans above and beyond the "health care costs." a. $7500 b. $6000 c. $12,000 d. $8000 2a. Now suppose insurance rules are changed to permit a new insurer (B) to enter this marketplace and be allowed to exclude the high risk due to pre-existing condition exclusions while the other incumbent insurer (A) is forced to still charge a community rate (as in the ACA). Assuming loads remain at 20% in long run equilibrium, what would the premiums be in each market, (low risk, high risk)? a. $5000, $10,000 b. $6000, $12,000 c. $7500, $15,000 d. $8000, $11,000
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
please answer 2a.
Transcribed Image Text:la. Suppose a particular population has two kinds of health risks, high and low. Let the
expected annual health care costs for the high risk be $10,000, and for the low risk, half that. If
there are twice as many low risk as high risk individuals, and if the one insurer's administrative
load is 20%, what would the community rated premium be if everyone is compelled to and able
to buy health insurance? Note: administrative load can be construed as the amount that the
insurer has in costs to run the plans above and beyond the "health care costs."
a. $7500
b. $6000
c. $12,000
d. $8000
2a. Now suppose insurance rules are changed to permit a new insurer (B) to enter this
marketplace and be allowed to exclude the high risk due to pre-existing condition exclusions
while the other incumbent insurer (A) is forced to still charge a community rate (as in the ACA).
Assuming loads remain at 20% in long run equilibrium, what would the premiums be in each
market, (low risk, high risk)?
a. $5000, $10,000
b. $6000, $12,000
c. $7500, $15,000
d. $8000, $11,000
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