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An insurance company offers health insurance. Assume that claims by the healthy cost the insurer $5,000 over the term of the policy and claims by
An insurance company offers health insurance. Assume that claims by the healthy cost the insurer $5,000 over the term of the policy and claims by those with pre-existing conditions costs $20,000. People know whether they are healthy or have preexisting conditions, but the insurer only knows that 20% of people have preexisting conditions, not who has them. a. What is the expected cost of losses to the insurance company? b. How much does the insurance company have to charge for health insurance to break-even? Why?
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