Somet Health Insurance Company wants to sell a health insurance product for $700 per month. There is no requirement for healthy people to have insurance coverage. The company conducts a survey to see how different populations respond to the proposed cost. People with no illnesses and disabilities, generally the young and healthy, respond that they do not spend $700 on healthcare in an entire year, and most feel they would not waste so much money on premiums when the chance of needing surgery or expensive healthcare treatments is so small. However, older, sicker people think that $700 per month is a great deal, as most of them spend far in excess of this amount on healthcare. It seems like a great deal for them. 1. If the company offers this product, how will adverse selection affect it?
ADVERSE SELECTION
Somet Health Insurance Company wants to sell a health insurance product for $700 per
month. There is no requirement for healthy people to have insurance coverage. The
company conducts a survey to see how different populations respond to the proposed cost.
People with no illnesses and disabilities, generally the young and healthy, respond that they
do not spend $700 on healthcare in an entire year, and most feel they would not waste so
much money on premiums when the chance of needing surgery or expensive healthcare
treatments is so small. However, older, sicker people think that $700 per month is a great
deal, as most of them spend far in excess of this amount on healthcare. It seems like a
great deal for them.
1. If the company offers this product, how will adverse selection affect it?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
