Knowing what you know about the consumer’s demand for health insurance, talk a little about how you would set prices for health insurance products. You know you need to come up with the actuarially fair premium and that you estimate that based on the costs of care you expect for a specified population. That’s easy! But you also need to think about the loading charge you would apply over and above that actuarially fair premium, right? How would you go about setting that charge knowing that it must include profit and your operating expenses? HINT: that does not always come up to 20% of premium! ;-) Seriously, what factors would you consider? Not only list them, but describe how they could influence your decision.

Secondly, in at least two full paragraphs, describe how you might go about setting the loading charge on two different health insurance products if you are deciding how much profit you need from an insurance product. What would your rationale be for setting a loading charge for one insurance plan that attracts a “sicker” population versus a plan that attracts a “healthier” population?

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There are a few factors that would influence my decision on setting a ... View the full answer