Figure 9.6
-Figure 9.6 represents the market for health insurance. Suppose there are two types of consumers, low-cost consumers with $2,000 average medical expenses per year, and high-cost customers with $4,000 average medical expenses per year. If $Y is the price the insurance company would charge if it expected 40% of its customers to be high-cost, the price it would charge if it expected 50% of its customers to be high-cost would be

Question

Quizplus · Accepted Answer

As the percentage of high-cost customers increases, the expected cost for the insurance company also increases. Therefore, in order to cover their expected costs and earn profit, the insurance company would charge a higher price if it expected 50% of its customers to be high-cost compared to if it expected only 40% to be high-cost. Thus, the price charged if it expected 50% of its customers to be high-cost would be greater than $Y.

Figure 9.6 -Figure 9.6 Represents the Market for Health Insurance. Suppose There