Answered: What would the community premium rate…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Suppose in a given state's new insurance marketplace, with community rating and no restrictions on who can buy at the community rate, the risk pool (distribution of expected health costs) is as follows:

20% of eligible enrollees' expected health costs = $1,000 (per year)

50% of eligible enrollees' expected health costs = $2,000

10% of eligible enrollees' expected health costs = $3,000

20% of eligible enrollees' expected health costs = $6,000

What would the community premium rate for this risk pool be if we also assume 10% loading costs for the insurer to cover its admin costs.

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