Question

Catastrophic medical expenses are large, infrequent and unpredictable. Risk aversion explains why people buy insurance which covers such catastrophic events.( true or false) The primary funding source for the expenses of current Medicare beneficiaries is the fund current beneficiaries contributed to throughout their lifetime. True False

Answer 1

A. Catastrophic medical expenses for catastrophic events such as heart disease, diabetes is highly unpredictable due to the type of healthcare needed for treatment. Therefore, treatment cost for catastrophic diseases sometimes is very high more than the income of a individual or family. Risk aversion is preference of indiviiduals to invest in low risk investment plan than high risk investment plan. Insurance companies also covers medical expenses for catastrophic events which is very high and extremely unpredictable. That is why people usually purchase insurance plans to avoid risks involved in catastrophic medical treatment. Therefore, statement is true.

B.The source of funding medicare expenses are monthly contribution from salaries or income of individuals into medicare plan, monthly contribution by employers into the medicare plan and fund allocations by Federal government for medicare plan. Therefore, the statement is false.