Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Econometric Analysis

Authors: William H. Greene

7th edition

131395386, 131395381, 978-0131395381

More Books

Students also viewed these Economics questions

Question

1. What does this mean for me?

Answered: 1 week ago