Exam 10: Health Insurance

Assume each person in an insurance pool has a risk function as follows: there is a 25% probability of an $800 loss, a 50% probability of a $700 loss, and a 25% probability of a $400 loss. What is the expected mean loss?

If total utility increases as wealth increases, the first derivative of the utility function is negative.

An implied condition of pooling risks with insurance is that the event being insured against is under the control of the individuals.

Under a community rating, all consumers pay the same premium regardless of his or her actual experience.

As the magnitude of the possible loss increases, the amount of money the individual is willing to pay to avert the possible loss increases.

Assume that the loading fee of an insurance policy increases from $800 per policy to $1,000 and that, as a result, consumers reduce their demand for insurance, and therefore their premiums, from $10,500 to $9,500. What is the price elasticity of demand?

If an individual had wealth of $10,000 with a corresponding utility of 100.0, a 20% probability of becoming ill resulting in medical costs of $2,000, which lowers utility to 84.4, then the expected utility without insurance is:

The existence of an elasticity of demand for medical care in response to insurance is known as moral hazard.

Describe how each of the following will affect the supply of insurance A larger pool of insured persons Lower administration costs for insurance companies Higher premiums with no change in risk experience A greater degree of risk aversion on the part of insurers

The greater the rate of decrease of marginal utility for an individual,

An insurance company has a payout of health benefits of $100,000. Admin?istrative expenses on top of that are $30,000, and profits are $10,000. The ratio of premiums to benefits is?

If an individual has a 90% chance of having $10,000 in wealth and a 10% chance of having only $9,000 because of a payout for medical care, what is the expected value of wealth of the individual?

What are the conditions that must be met in order for the market for insurance to perform efficiently?

Strictly speaking, the price of insurance is the pure or actuarily fair premium.

The first known health insurance in the United States was implemented by the Granite Cutters Union.