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 = $2,0005% of eligible enrollees' expected health costs = $10,000 What would the pure community premium rate for this risk pool be? (assume zero loading costs for simplicity in this problem)

Insurance mandates do little to combat the problem of adverse selection. True False

Consider the following information: Patients who are given Treatment A live for one year in Health State q = 0.8 and certainly live for another year in Health State q = 0.5. Patients who are given Treatment B live for one year in Health State q = 1.0 and then either die with probability 70% or live for another year in Health State q = 1.0 with probability !3! 30%. Which of the following statement is TRUE regarding the abovementioned information? If the second year is discounted at rate r= 0.10 then the expected present value QALYS for treatment A and B is 1.35 and 1.33, respectively. O If the second year is discounted at rate r = 0.10, Treatment A and B yield the same more expected present value QALYS. If the second year is discounted at rate r= 0.10, Treatment A yields more expected present value QALYS. If the second year is discounted at rate r = 0.10 then the expected present value QALYS for treatment A and B is 1.25 and 1.27, respectively. O If the second year is discounted at rate…

Now consider a different insurance company that does not have the inclination to tailor contracts specifically to individuals. Instead, it will offer a “standard contract” with the premium r =$100 and payout q=$500 to anyone who will purchase it. a. Peter has healthy-state income IH = $500 and sick-state income IS = $0. He has probability of illness p=0.1. Is the standard contract fair and/or full for Peter? If he ends up getting sick, what will his final income be? b. Tim has IH = $500 and IS = $0, but a probability of illness p = 0.2, higher than Peter’s. Is the standard contract fair and/or full for Tim? How does purchasing the standard contract affect Tim’s expected income?c. Jay has IH =$1, 000 and IS =$0, with probability of illness p=0.2. Is the standard contract fair and/or full for Jay?d. Suppose there is a customer named Ronald for whom the standard contract is partial and actuarially unfair in the insurance company’s favor. Give a set of possible values for Ronald’s IH, IS,…