Assume a high-risk;person has a 0.50 probability of a $500 medical expense and a low-risk person has a 0.10 probability of a $500 medical expense.Both types of people are risk averse.What is the community rating premium for a neighborhood containing exactly half of each type of person?

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Quizplus · Accepted Answer

The community rating is the average expected cost.In this case it is (0.5)(0.5)($500)+ (0.5)(0.1)($500)= $500(0.5)(0.6)= $150.

Assume a High-Risk;person Has a 0