Question

1. Adverse selection may result in both the low risk and the high risk people in a population being left uninsured. Is this, in itself, a market failure?

Yes, for the low risk group, but not for the high risk group.

Yes, for the high risk group, but not for the low risk group.

No, this is not a market failure on its own--there is no market failure unless positive exernalities in the use of health care exist.

No, this is just how markets work--only those willing and able to pay the price can buy a product..

Question 2

Which of the following statements is FALSE?

A deductible is an amount of money that an insured person must pay out-of-pocket before their insurance starts to pay for any health care.

The elderly are the best insured age group in the U.S.A.

A risk averse person would never buy actuarially fair health insurance.

Insurers have used pre-existing conditions in practicing Adverse Selection.

Question 3

Which of the following are examples of Adverse Selection in the market for health insurance?

(i) Insurers rejecting high cost customers;

(ii) People with low expected health care costs choosing to not buy insurance;

(iii) Uninsured people delaying seeking treatment until it is an emergency;

(iv) Insurers refusing to renew policies of sick people;

(v) Insurers imposing lifetime limits on how much health care they will pay for each person.

(i), (ii), (iv), and (v), only.

(i), (iv), and (v), only.

(i) and (ii), only.

All of (i), (ii), (iii), (iv), and (v).

Question 4

Which of the following are possible government solutions to the various types of adverse selection in the market for health insurance?

(i) Require doctors to have a license to practice medicine;

(ii) Make it mandatory for everyone to have health insurance;

(iii) Impose regulations on private insurance companies;

(iv) Provide health insurance for the full population, paying for it through taxation;

(v) Provide health care by owning hospitals, employing doctors, and purchasing health care resources, all financed through taxation.

All of (i), (ii), (iii), (iv), and (v).

(ii), only.

(ii), (iii), (iv), and (v), only.

(iii), (iv), and (v), only.

Question 5

Which of the following statements is FALSE?

The purpose of health insurance is to protect individuals from predictable, recurring, low-level costs, like preventive care.

Low risk people choosing to drop out of the market, increases the premiums that must be charged to those remaining in the insurance pool.

Risk pooling enables an insurer to spread risks across everyone in the insurance pool.

Adverse selection of low risk people is the result of Asymmetric Information.

Answer 1

1) Adverse Selection may results in both the low risk and the high risk people in a population being left uninsured. Is this, a market failure?

Ans) Yes, for the high risk group, but not for the low risk group because adverse selection leads to situation when people have risky lifestyle or risky job profile.

2)Which of the following statement is FALSE?

Ans)A Risk averse person would never buy actuarially fair health insurance because uninsurance is actuarially fair but sometimes risk averse consumers will prefer full insurance to uninsurance even if it is actuarially unfair.

3)which of the following are examples of Adverse selection in the market for health insurance?

Ans)(i), (ii), (iv) & (v) only because adverse selection is behaviour of the more informed person against the less inform person. In all this cases it is the strategic behaviour of the people about insurance.

4)Which of the following are possible government solutions to the various types of adverse selection in the market for health insurance?

Ans) All of (i), (ii), (iii), (iv) & (v)

5)Which of the following statements is FALSE?

Ans)The purpose of health insurance is to protect individuals from predictable, recurring, low- level costs, like preventive care

low risk people choosing to drop out of the market, increases the premiums that must be charged to those remaining in the insurance pool.