Question

In: Economics

Suppose in a given state's new insurance marketplace, with community rating and no restrictions on who...

Suppose in a given state's new insurance marketplace, with community rating and no restrictions on who can buy at the community rate, the risk pool (distribution of expected health costs) is as follows:

30% of eligible enrollees' expected health costs = $1,000 (per year)

65% of eligible enrollees' expected health costs = $2,000

5% of eligible enrollees' expected health costs = $10,000

1.) What would the pure community premium rate for this risk pool be? (assume zero loading costs for simplicity in this problem)

Solutions

Expert Solution

The premium rate can be calculated as:

Summation of (Percentage of population * Cost)

Premium rate = 0.30 * 1000 + 0.65 * 2000 + 0.05 * 10000

Premium rate = 300 + 1300 + 500 = $2100

Rahul Sunny answered 2 years ago
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