Hello, I would really appreciate help on this problem with a step by step soluti

Question

Hello,

I would really appreciate help on this problem with a step by step solution. Please complete ALL parts of the problem. Thank you so much!

9. Suppose that the government genetically tests people for the risk of major illness and makes the results public. It labels some people as "health" and some people as "sick." a. What happens to health insurance premiums for healthy people if they buy insurance on the private market? b. Employer provided health insurance usually is provided to workers for the same premium and does not depend on the health of the worker. What would you expect to happen to the demand for employer provided health insurance by healthy people? c. How would this create an adverse selection problem in employer provide health insurance?

Explanation / Answer

As the question government genetically tests people for the risk of major illness and makes the results public, it branded people as "health" and "sick"

a) When the market has knowledge about the type of people the health insurance premiums for healthy people will fall down because healthy people are not in much need of health insurance (as they have low probability of falling sick) in contrast to sick people.

b) Demand for employer provided health insurance by worker will fall down because the healthy people have low probability of falling sick and would prefer not to buy a health insurance at all or at the same rate as sick.

c) Adverse selection refers to a situation in which seller has less information in contrast to buyers about product quality, when government genetically tests people for the risk of major illness and makes the results public, the employees who will most be willing to tak health insurance would be sick employees, this is because they have higher probability of falling ill however the employer will have no idea that he is selling health insurance to sick employees, this creates adverse selection problem.

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.