Consider an example of the death spiral. An economy consists of five types of people in equal numbers with different pre-existing health problems.
The following table shows their expected healthcare costs for the coming year:
Expected healthcare costs
Type (In dollars)
A 1,020
B 2,020
C 3,020
D 4,020
E 5,020
If all five types of people buy health insurance, the average cost of healthcare paid by insurance companies will be $_____. The companies need to cover this average cost, plus other expenses (including a normal profit) of $800. Assuming the companies must charge all consumers the same price, the price of insurance will be $_____.
