5) If there is no uncertainty in society (perfect information: everyone knows if they are going to get sick, when and the level of disease),…
A) it is possible for the probability of being sick to equal 20%
B) people will be willing to pay high premiums for health insurance coverage especially the healthy ones who know they will only have minor illness
C) the expected income when sick = 100
D) the expected income when healthy = $1 million
E) a private health insurance industry will not make any money
13) Given
IS = $2,000
IH = $7,000
E(I) = $6,500
what is the probability of getting sick (p)?
A) 90%
B) 100%
C) 1%
D) 10%
E) none of the above
IN ADDITION TO THE INFORMATION FROM QUESTION 13
14) In addition to the question above above assume a health insurance policy that has these values:
r = $500
q = $5,000
we can say that
A) this policy is partial insurance
B) this policy is full insurance
C) this policy achieves state independence
D) b and c
E) this policy does not achieve state independence
