B. 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)? la. Suppose a particular population has two kinds of health risks, high and low. Let theexpected annual health care costs for the high risk be $10,000, and for the low risk, half that. Ifthere are twice as many low risk as high risk individuals, and if the one insurer's administrativeload is 20%, what would the community rated premium be if everyone is compelled to and ableto buy health insurance? Note: administrative load can be construed as the amount that theinsurer has in costs to run the plans above and beyond the "health care costs."a. $7500b. $6000c. $12,000d. $80002a. Now suppose insurance rules are changed to permit a new insurer (B) to enter thismarketplace and be allowed to exclude the high risk due to pre-existing condition exclusionswhile 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 eachmarket, (low risk, high risk)?a. $5000, $10,000b. $6000, $12,000c. $7500, $15,000d. $8000, $11,000

It is given that there was only one incumbent insurer and the insurer is (A). The incumbent insurer…

Answered: la. Suppose a particular population has…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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B. 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)?

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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