Explain the adverse selection problem that is faced by health insurance companies when offering individual health insurance policies. What method do health insurance companies employ to combat the problem?
What will be an ideal response?
The adverse selection problem that health insurance companies face is that they would like to insure as many healthy people as possible. Unfortunately healthy people will have a lower tendency to purchase health insurance. By contrast people who assess that they are more likely to use the health insurance because of their perceived or known health problems will be more inclined to seek out insurance. Health insurance companies can combat this problem by requiring potential policy holders to take a physical exam which may reveal pre-existing conditions which they may either choose not to cover or do so with a higher premium.
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What is the key macroeconomic issue of the short run and what is the key macroeconomic issue of the long run?
What will be an ideal response?
Appendix: When two or more "independent" variables are highly correlated, then we have:
a. the identification problem b. multicollinearity c. autocorrelation d. heteroscedasticity e. complementary products
Change in the price of a good causes the demand schedule for that good to shift
a. True b. False Indicate whether the statement is true or false
Price controls would ordinarily be used to increase rather than decrease prices of depletable resources
a. True b. False Indicate whether the statement is true or false