a) [Experience Rating] Suppose "experience rating" is allowed, meaning that insurers know the risk type of each individual and can offer each risk group a different contract.

i. Show graphically that when offered policies along the corresponding breakeven line (i.e. insurers offer policies along the breakeven line for high/low risks to high/low risk individuals), which plan would be chosen by the low risk? Which plan would be chosen by the high risk? (3 points)

ii. Which risk type end up with plans with higher premium, the high risk or the low risk? (1 point)

iii. Are these plans full insurance plans, i.e., plans with no out-of-pocket cost? (1 point)

iv. What is the fairness issue of the "experience rating" equilibrium (i.e., insurers offering different insurance plans to different risk types)? (1 point)