Part A: Suppose a particular population has two kinds of health risks, high and low. Let the expected annual health care costs for the high risk be $10,000, and for the low risk, half that.If there are twice as many low risk as high risk individuals, and if the one insurer's administrative load is 20%, what would the community rated premium be if everyone is compelled to and able to buy health insurance?Note:administrative load can be construed as the amount that the insurer has in costs to run the plans above and beyond the "health care costs."

Part B: Now suppose insurance rules are changed to permit a new insurer (B) to enter this marketplace and be allowed to exclude the high risk due to pre-existing condition exclusions while the other incumbent insurer (A) is forced to still charge a community rate (as in the ACA).Assuming loads remain at 20% in long run equilibrium, what would the premiums be in each market, (low risk, high risk)?

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