Health USA is established in 2021 and began operations in January 2022. Health USA will be...

  

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Health USA is established in 2021 and began operations in January 2022. Health USA will be subsidized by the US Treasury so only needs to be concerned with claim costs; assume 0% load for expenses and profit and no interest. Health USA has observed that expected health care costs, based on the industry at large, are distributed as follows: Number of People 20 20 889 20 20 10 6 2 1 1 Average Annual Expected Cost Per Person 500 1,000 5,000 10,000 20,000 60,000 225,000 500,000 Health USA is barred by Congress from underwriting; it must accept all applicants regardless of their health status ("guaranteed issue") and it must charge all applicants the same premium. Health USA will set its premium for the first year at the expected average cost and it expects all eligible participants to join the plan. 2. A. What is the premium that Health USA will charge for Year 2 (2023)? Individual purchase of insurance is NOT mandatory. Individuals will only join Health USA as long as the premium charged is NO GREATER than (3 times their expected cost + $500). They don't know exactly what their health care costs will actually be for the following year, but they have some sense of their relative wellness. B. How many individuals will purchase insurance from Health USA for 2023? C. What is the total amount of premium that Health USA will collect during 2023? D. What are the anticipated total claims costs that it will incur during 2023, given the population that it is insuring? E. What is the 2023 profit/loss for Health USA? Health USA is established in 2021 and began operations in January 2022. Health USA will be subsidized by the US Treasury so only needs to be concerned with claim costs; assume 0% load for expenses and profit and no interest. Health USA has observed that expected health care costs, based on the industry at large, are distributed as follows: Number of People 20 20 889 20 20 10 6 2 1 1 Average Annual Expected Cost Per Person 500 1,000 5,000 10,000 20,000 60,000 225,000 500,000 Health USA is barred by Congress from underwriting; it must accept all applicants regardless of their health status ("guaranteed issue") and it must charge all applicants the same premium. Health USA will set its premium for the first year at the expected average cost and it expects all eligible participants to join the plan. 2. A. What is the premium that Health USA will charge for Year 2 (2023)? Individual purchase of insurance is NOT mandatory. Individuals will only join Health USA as long as the premium charged is NO GREATER than (3 times their expected cost + $500). They don't know exactly what their health care costs will actually be for the following year, but they have some sense of their relative wellness. B. How many individuals will purchase insurance from Health USA for 2023? C. What is the total amount of premium that Health USA will collect during 2023? D. What are the anticipated total claims costs that it will incur during 2023, given the population that it is insuring? E. What is the 2023 profit/loss for Health USA?

Answer rating: 100% (QA)

A Premium Calculation for Year 2 2023 The premium charged by Health USA for Year 2 2023 is calculate... View the full answer