Private medical insurance companies sell policies that allow policyholders to make premium payments in exchange for the insurance company paying some or all of the policyholders’ medical bills. An article in the Economist observes that: “health insurance is an unusual product in that it guarantees a basket of services which is always improving and getting more expensive.”
a. What basket of services does a medical insurance policy guarantee?
b. Why might the fact that medical services are always improving and getting more expensive create difficulties for companies offering medical insurance policies?