Which of the following are possible reasons why empirical studies do not always find evidence for adverse selection in the real world? (please choose all that apply) Insurees with higher cognitive ability (though low-risk) were more likely to purchase supplemental insurance Insurers can accurately predict customers risk Insurees misperceive their risk Risk aversion overcomes adverse selection on health risks
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- Which of the following statements is FALSE regarding the concept of "adverse selection"? Multiple Choice Adverse selection describes a situation where an individual's demand for insurance is positively correlated with the individual's risk of loss. Adverse selection occurs when someone increases their exposure to risk when insured. This can happen, for example, when a person takes more risks because someone else bears the cost of those risks. The relationship between smoking status and mortality provides a good illustration for adverse selection, especially in the case in which a life insurance company did not vary its premiums according to smoking status of its customers. To counter the effects of adverse selection, insurers may offer premiums that are proportional to a customer's risk.Multiple Choice Adverse selection describes a situation where an individual's demand for insurance is positively correlated with the individual's risk of loss. Adverse selection occurs when someone increases their exposure to risk when insured. This can happen, for example, when a person takes more risks because someone else bears the cost of those risks. The relationship between smoking status and mortality provides a good illustration for adverse selection, especially in the case in which a life insurance company did not vary its premiums according to smoking status of its customers. To counter the effects of adverse selection, insurers may offer premiums that are proportional to a customer's risk.In the mid-1990s, the state of New Jersey revised its rules for the individual insurance market and began requiring that insurers charge the same premiums for the same coverage to all applicants. Assuming that insurers had previously used medical underwriting, which of the following is a predictable consequence of adverse selection? 1) Insurance becomes less attractive to the healthiest individuals, so fewer of them buy it 2) Insurers’ average costs of providing coverage increase because of a changing risk pool 3) The average age of those buying in the individual market goes up 4) All of the above
- Indicate whether each statement is true or false, and justify your answer.Insurance mandates do little to combat the problem of adverse selection.Provide an intuitive discussion of how adverse selection affects the used-car market. Describe one potential signal that can help alleviate the problem of adverse selection in this market and discuss how this signal satisfies the two necessary assumptions for it to be used as a credible signal.In economic terms, moral hazard is the negative relationship between the out-of-pocket price of the physician visit and the quantity of the physician visits demanded in a given time period. a.True b.False
- Indicate whether the statement is true or false, and justify your answer.Results from the Oregon Medicaid Experiment suggest that having health insurance has a positive impact on health status.One major premise of the Rothschild–Stiglitz model is that there is a perfectly competitive market for health insurance. Suppose instead that the market is not perfectly competitive, and in fact competitor firms have a hard time entering the market. Could a pooling equilibrium occur in this case? What is it about competition that prevents pooling in the Rothschild–Stiglitz model? No formal proof is necessary, but do make your reasoning clear. Evaluate the following statement: competition in health insurance markets is harmful.“Too big to fail” was a common buzz phrase during the Great Recession. The idea behind it is that certain businesses are so important to an economy that disastrous consequences would result if they were allowed to fail and so government intervention is necessary. How is the concept of moral hazard relevant here? Please explian the reasoning
- The president-elect of healthystate appointed you on top of a health transition team and requested a new health policy that will ensure equity, liberty, and minimize the cost of implementing it. In addition, the president-elect wants to minimize the role of the government under the new policy. With Moral hazard and adverse selection problems being the major challenges to any policy, design a plan that provides equity to the public, eliminate adverse selection problem, and combat moral hazard. In addition, identify parties that would be tasked with the implementation of the policy while minimizing the role of the government in the process.Long term disability (LTD) insurance policies cover workers who become disabled and can no longer perform their job functions. Workers who think they qualify as disabled can submit a claim to their employer for LTD payments to replace their lost wages. Below is an excerpt of the abstract of a recent NBER working paper entitled “Moral Hazard and Claims Deterrence in Private Disability Insurance” by David Autor, Mark Duggan, and Jonathan Gruber: We provide a detailed analysis of the incidence, duration and determinants of claims made on private Long Term Disability (LTD) policies using a database of approximately 10,000 policies and 1 million workers from a major LTD insurer.. . . [W]e find that a higher [wage] replacement rate and a shorter waiting time to benefits receipt . . . significantly increase the likelihood that workers claim LTD. Higher disability claim rates when LTD benefits are more favorable may be an instance of moral hazard. Any instance of moral hazard involves a…Insurance coverage has been shown to diminish the importance of time in the decision about how much medical care to seek and which providers to use. True OR False