is related to healthcare for premium as well as program if total gross this year any share of subsidy given option to income of the cost) from (d) participate or individual) not Joe $10,000 Low $10,000 $2000 Will not Healthcare participate costs Mary $10,000 Significant $10,000 $200,000 Will participate Healthcare costs Sue $10,000 Some $10,000 $10,000 May or may not Healthcare participate costs Mabel $20,000 Low $20,000 $2000 Will not Healthcare participate costs Clyde $20,000 Some $20,000 $10,000 Will not Healthcare participate costs Sylvester $60,000 Low $36,000 $2000 Will not Healthcare participate Owen $100,000 Some $36,000 $10,000 Will not Healthcare participate costs Abigail $100,000 Some $36,000 $10,000 Will not Healthcare participate costs Samantha $100,000 Low $36,000 $2000 Will not Healthcare participate costs Cletus $100,000 Low $36,000 $2000 Will not Healthcare participate costs f. Given your work in this problem, provide a brief explanation of why the Affordable Care Act (“Obamacare”) includes both a subsidy for low income individuals as well as an Individual Mandate that requires everyone to purchase healthcare insurance. Answer: The adverse selection problem exists in the market of health insurance because of asymmetric information. People know more about their health and their potential health care issues than do insurers, so even when insurance companies do their homework about how much someone will cost them to insure, they can only know so much. When only sick people or people with a higher likelihood of becoming sick buy insurance, their costs of care will be relatively high compared to a more diverse (in terms of healthcare needs) pool of people and the insurance company will need to collect relative high insurance premiums for this group. Higher premiums make insurance even less attractive for healthy people, causing even more of them to drop out of the healthcare insurance market. As this problem continues to become a bigger problem it leads to coverage becoming too expensive for almost everyone and the
is related to total gross income of the individual) healthcare for this year premium as well as any share of subsidy cost) from (d) program if given option to participate or not Joe $10,000 Low Healthcare costs $10,000 $2000 Will not participate Mary $10,000 Significant Healthcare costs $10,000 $200,000 Will participate Sue $10,000 Some Healthcare costs $10,000 $10,000 May or may not participate Mabel $20,000 Low Healthcare costs $20,000 $2000 Will not participate Clyde $20,000 Some Healthcare costs $20,000 $10,000 Will not participate Sylvester $60,000 Low Healthcare $36,000 $2000 Will not participate Owen $100,000 Some Healthcare costs $36,000 $10,000 Will not participate Abigail $100,000 Some Healthcare costs $36,000 $10,000 Will not participate Samantha $100,000 Low Healthcare costs $36,000 $2000 Will not participate Cletus $100,000 Low Healthcare costs $36,000 $2000 Will not participate f. Given your work in this problem, provide a brief explanation of why the Affordable Care Act (“Obamacare”) includes both a subsidy for low income individuals as well as an Individual Mandate that requires everyone to purchase healthcare insurance. Answer: The adverse selection problem exists in the market of health insurance because of asymmetric information. People know more about their health and their potential health care issues than do insurers, so even when insurance companies do their homework about how much someone will cost them to insure, they can only know so much. When only sick people or people with a higher likelihood of becoming sick buy insurance, their costs of care will be relatively high compared to a more diverse (in terms of healthcare needs) pool of people and the insurance company will need to collect relative high insurance premiums for this group. Higher premiums make insurance even less attractive for healthy people, causing even more of them to drop out of the healthcare insurance market. As this problem continues to become a bigger problem it leads to coverage becoming too expensive for almost everyone and the
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