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Occupational Health and Safety, Canadian Edition

15th Edition
by David L. Goetsch, University of West Florida and Oskaloosa-Walton Eugene Ozon, Algonquin College
1035 Solutions 49 Chapters 1482 Studied ISBN: 0133450244 Computer Science 5 (1)

Chapters 4A: DQ 1

APPENDIX DISCUSSION QUESTIONS

1. Because medical records are private, an individual applying for health insurance will know more about his own health conditions than will the insurance companies to which he is applying for coverage. Is this likely to increase or decrease the insurance premium that he will be offered? Why?


Step-By-Step Solution

APPENDIX DISCUSSION QUESTIONS

1. Because medical records are private, an individual applying for health insurance will know more about his own health conditions than will the insurance companies to which he is applying for coverage. Is this likely to increase or decrease the insurance premium that he will be offered? Why?

Answer: This will likely increase the insurance premium because the buyers of the insurance policy have more information about their health status than the sellers (the insurance companies). Because of this asymmetric information problem insurance companies will likely suffer losses if they charge an insurance premium based on the average health of the population. Only the unhealthy will purchase coverage at this 'average' price. These potential losses will force insurance companies to charge a higher premium, on average, than they would if they had complete information.


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