Question

Paraphrase below please!

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Matt’s university employer presented a large pool of people to the insurance company. Insurance companies will insure a large pool of customers for less money than they will insure individuals for two reasons. First, employees of such a large employer are unlikely to be any less healthy, on average, than any other group of people with the same distribution of and gender. Since people are unlikely to select university employment based on their likelihood to use health insurance, the insurance company avoids the problem of adverse selection. Second, the law of large numbers predicts that the incidence of a large health insurance claim in this large population would be about what you would statistically expect in the population as a whole. In addition, a university pool is typically healthier than average population since it contains more educated and younger enrollees. Individuals or small groups, on the other hand, don’t give insurance companies this risk-pooling advantage, and individuals who seek health insurance may be doing so because of adverse selection-that is, because they know they are in poorer-than-average health. As a result, the insurance company must charge Matt a higher premium if he quits.

Answer 1

Matt’s university employer offered a large group of people to the insurance company so as to be insured. Insurance companies will insure a large group of customers for less money as compared to individuals because of two reasons. First, employees of such a large employer are likely to be healthy on an average as compared to any other group of people with the same distribution and gender. Meanwhile people are not likely to choose university employment which is based on their probability to use health insurance, thus the insurance company avoids the problem of hostile selection. Second, the law of large numbers forecasts that the occurrence of a large health insurance claim in this large population would be what is statistically projected in the population as a whole. In addition, a university group is usually healthier than average population as it has more educated and younger enrolees (registered people). Individuals or small groups, on the other hand, don’t give insurance companies this risk-pooling advantage I.e. risk is associated with them, and individuals who seek health insurance may be doing so for the reason that they are in poorer health-than-average health. It is for this reason; the insurance company must charge Matt a higher premium if he quits.