Unlike perfectly competitive markets, health insurance and health care markets are characterized by asymmetric information inmany forms. To see the consequences, consider the following scenario:The population is evenly divided between 2 types of people: healthy people and unhealthy people. Healthy people have expectedhealth care costs of $1000 per year. Unhealthy people have expected health care costs of $5000 per year. Unhealthy people canbecome healthy by working out, eating healthier, and taking preventive care. Assume that the cost of becoming healthy in termsof time and effort is $2000 per year. These people live in a city with one employer who will hire anyone who is willing to work.This employer provides complete health care to all its employees; all health care costs are covered by the insurance.Do the unhealthy employees have an incentive to become healthy?Ο NoO YesO There is not enough information to tell.What is the actuarial fair cost of insurance for all the workers?Actuarially fair cost: $5000Suppose a new employer that pays $1500 more in wages per worker but does not offer any insurance (and there is no marketfor health insurance) enters the market. Which people will go and work for the new employer?The healthyO The unhealthyO NoneO Both groupsWhat would the new actuarially fair cost of insurance be at the original firm?New actuarially fair cost: $

1. No. Becsuse, The only employer in the town is giving the job to everyone irrespective of the…

Ithy by working out, eating healthier, and taking preventive care. Assume that the cost of becoming effort is $2000 per year. These people live in a city with one employer who will hire anyone who is wer provides complete health care to all its employees; all health care costs are covered by the insura healthy employees have an incentive to become healthy? = is not enough information to tell. actuarial fair cost of insurance for all the workers? fair cost: $ 5000 new employer that pays $1500 more in wages per worker but does not offer any insurance (and there insurance) enters the market. Which people will go and work for the new employer? ealthy nhealthy groups the new actuarially fois.

Ithy by working out, eating healthier, and taking preventive care. Assume that the cost of becoming effort is $2000 per year. These people live in a city with one employer who will hire anyone who is wer provides complete health care to all its employees; all health care costs are covered by the insura healthy employees have an incentive to become healthy? = is not enough information to tell. actuarial fair cost of insurance for all the workers? fair cost: $ 5000 new employer that pays $1500 more in wages per worker but does not offer any insurance (and there insurance) enters the market. Which people will go and work for the new employer? ealthy nhealthy groups the new actuarially fois.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter16: Bargaining

Section: Chapter Questions

Problem 16.6IP

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