Question

4. Health insurance is becoming very expensive in Freedonia, and BBNW wants to raise coinsurance and deductibles to combat this. How are these changes likely to affect Asclepius? What evidence can you present that supports your argument?

Answer 1

Ceteris paribus, a policy with high deductibles costs less than a policy with lower
deductibles. Deductibles, co-insurance and co-pays in health insurance ensures that policyholders have "skin in the game". Co-pays,etc. mitigates the risk that a policy holder may not act in good faith if they dont have to bear financial consequences.

For insurers, deductibles acts as a cushion against financial stress caused
by accumulation of small losses by differentiating between any minor loss and a real catastrophic loss.

By striking an actuarial balance between co-insurance / deductibles, health premiums and insurance risks, the benefits of health cover could be extended to more wider population with meaningful economic balance between losses and protection while minimising issues of adverse selection.

As evidence, one could refer cost of any random general medical cover plan. The costs are higher in case of lower or nil deductibles and vice versa.