Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Fracking is the practice of shooting liquid into shale deposits in the ground in order to widen and hold open cracks in the shale so

"Fracking" is the practice of shooting liquid into shale deposits in the ground in order to widen and hold open cracks in the shale so that natural gas trapped in the shale can flow into sunken pipes and be extracted as fuel. There is a lot of fracking going on in Central Pennsylvania because of our large Marcellus Shale shield.

The liquid that is pumped into the shale contains toxic chemicals, notably benzene which is a causal factor in acute myeloid leukemia. Because the population of Central PA is at greater risk of leukemia from gas industry practices, the insurance companies that provide health insurance to this population would like to rate their premiums to cover the increased risk and increased cost.

Before the natural gas companies came to Central Pennsylvania and changed the health status of the people living there, 100% of the households in one county had employer-paid health insurance. The fair premium per family was $8300 per year, and every policy required each family to pay 20% of their own expenses while the insurance company covered the other 80%. There were also loading factors that we will ignore although they are included in the premium charged to the employer. We are interested in knowing how the premium must change to account for the increased risk of AML and how the cost to the insured (as a deductible) is likely to change.

The $8300 premium that is currently being paid is "sunk cost." It already includes the average risk of AML for the population throughout the nation and should not be included in our calculations. We are interested only in calculating the increased risk and increased cost for this particular population, and determining the rating that must be added to the existing premium to cover this new precondition.

The increase in prevalence rate for AML and the cost of treating each case of AML are given in your question set. They are sufficient to calculate the rating as an Expected Value. This rating would then be added on to the $8300 annual payment that employers are already paying.

What is the Expected Value Cost of AML to individuals living in the County? (show calculations)

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

International Economics Theory and Policy

Authors: Paul R. Krugman, Maurice Obstfeld, Marc J. Melitz

9th Edition

978-0132146654, 0132146657, 9780273754091, 978-0273754206

More Books

Students also viewed these Economics questions

Question

How can Change Control Procedures manage Project Creep?

Answered: 1 week ago