Suppose there are two types of people. Healthy and Unhealthy. It\'s expensive to
ID: 1209408 • Letter: S
Question
Suppose there are two types of people. Healthy and Unhealthy. It's expensive to insure unhealthy people for obvious reasons. It's relatively inexpensive to insure healthy people because they are unlikely to have large medical bills. Suppose the marginal cost of providing an insurance policy to a Healthy person is $1000 per year and the marginal cost of providing an insurance policy to an Unhealthy person is $4000 per year. Once you have a policy, it covers any medical expenses that you incur (i.e the company can't withhold coverage if you turn out to be more expensive to insure than they expected). Assume that insurance companies set P-MC. Healthy people are willing to pay $1500 per year for health insurance. Unhealthy people are willing to pay $5000 per year for health insurance. Will an insurance market exist? Explain Assume 20% of the population is unhealthy. If everyone buys insurance, what will insurance companies charge for a policy? Show your work. Now assume people can choose whether to buy insurance or not. Who wil buy insurance now? As a result, what will happen to the price of insurance in equilibrium? Show your work. How could government lower the price of health insurance? Evaluate the following possibilities. bullet Impose a mandate that makes everyone buy health insurance. bullet Provide healthcare subsidies bullet Impose n pnee ceiling of $1200Explanation / Answer
yes, here also the insurance market exist, but many of the people who are healthy only takes insurance. because at least helthy people may take policies, because of life is uncertain. anything may happen which we may not expect or predict.
b. it is the potential market to the insurance company, they can make the 20% people as insurers. the firms will collect higher premiums from the insurance takers and generate higher revenues to the firms.
c. the people who are healthy they only buy insurance with low premiums, because purchasing insurance made an option or choice and it is upto the interest of people only.
d. government should provide health care subsidies.
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