Which of the following is data regarding financial risks associated with insurance programs? financial consideration informationinancial consideration information actuarial information capitated information enrollee information
Added by Susan F.
Close
Step 1
Step 1: Actuarial information is data that is used to assess the financial risks associated with insurance programs. Show more…
Show all steps
Your feedback will help us improve your experience
Sanchit Jain and 63 other Principles of Accounting educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Recommended Videos
health financing
Sanchit J.
There are five people interested in purchasing health insurance. The table below shows the probability that each individual will have a negative health event (e.g., heart attack) and the cost of health care for that individual if the negative health event occurs (otherwise they will have no health care costs). Each individual is risk-averse, and is willing to purchase health insurance at a price up to 20% more than their expected loss. a - What is the expected cost of health care for each individual? How much is each individual willing to pay for full insurance? (Fill in the table above.) b - What price would the insurance company need to charge for insurance to earn an expected profit of zero if insurance was purchased by everyone? (I.e., what is the average expected cost for these people, or what is the actuarially fair premium?) c - What would the insurance company’s expected profit actually be if it offered insurance at the price found in part (b)? [Hint: who will buy it at this price?] (Note: Expected profit is equal to total revenue from sales of insurance minus the expected cost of health care for all insured individuals) d - What price would the insurance company need to charge for insurance to earn an expected profit of zero if insurance was purchased by all of the people who bought insurance in part (c)? e- What would the insurance company’s expected profit actually be if it offered insurance at the price found in part (d)? f- What price would the insurance company need to charge for insurance to earn an expected profit of zero if insurance was purchased by all of the people who bought insurance in part (e)? g- What would the insurance company’s expected profit actually be if it offered insurance at the price found in part (f)?
Akash M.
Suppose that half the population is healthy and the other half is unhealthy. If an insured healthy person gets sick, the full cost to the insurance company is $\$ 1,000 .$ If an insured unhealthy person gets sick, the cost to the insurance company is $\$ 10,000 .$ In a given year, any one person (healthy or unhealthy) has a $40 \%$ chance of getting sick. People know whether they are healthy but the insurance company does not. The insurance company offers complete, actuarially fair insurance at the same price to everyone. The insurance company covers all medical expenses of its policyholders, and its expected profit is zero. a. If everyone purchases insurance, what is the price of the insurance? b. If only unhealthy people purchase insurance, what is the price of the insurance? c. If each person has the option of buying insurance, explain why adverse selection might be expected unless healthy people are highly risk averse. A
Asymmetric Information
Adverse Selection
Recommended Textbooks
Horngren’s Cost Accounting
Cost Accounting A Managerial Emphasis
Principles of Accounting Volume 1: Financial Accounting
Transcript
Watch the video solution with this free unlock.
EMAIL
PASSWORD