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- The Marketplace Insurance & Casualty Organization (MICO) sells individual health insurance. MICO estimates that the probabilities of a medical event for the three risk
- The Marketplace Insurance \& Casualty Organization (MICO) sells individual health insurance. MICO estimates that the probabilities of a medical event for the three risk types are as follows (for simplicity, assume that there is the same number of participants of each risk type): - Consider for all risk types, the healthy-state wealth is WH=$900, and sick-state wealth is WS=$400. The lost income due to illness is therefore $500. Furthermore, utility U=W for all risk types. a. The ACA requires that MICO must offer full coverage and charge the same premium to all of its policyholders. For simplicity, assume the premium must be set such that the dollar value of MICO's expected profit from selling insurance is equal to $0 (i.e., fair insurance). MICO must establish an initial premium (P) that will enable it to comply with ACA's insurance regulations. What will the initial premium be? b. What is the expected utility for all risk types if they buy insurance and pay a premium equal to the initial premium (P)
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