Masomenos, a premier health insurer, was asked by Verycheap Inc. to provide a quote on a...

 

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Masomenos, a premier health insurer, was asked by Verycheap Inc. to provide a quote on a health insurance policy for its employees. Masomenos evaluates that Verycheap's employers' projected yearly health expenditures are uniformly distributed between $0 and $4,000. It also estimates that each em- ployer values such health expenditures $400 more than the actual cost. Finally, consider that Masomenos incurs in administrative costs of $100 per insured em- ployee. (a) What price will Masomenos quote? What is the fraction of employees that will buy insurance? What is the expected health expenditures of the health- iest insurance subscriber? (10 points) (b) Now assume that Verycheap decides to subsidize insurance, by paying $100 to every employee that subscribes. What price will Masomenos quote? What is the fraction of employees that will buy insurance? What is the expected health expenditures of the healthiest insurance subscriber? (10 points) (c) Finally, assume that Verycheap's subsidy is ad-valorem, i.e. is expressed as a percentage of the insurance premium. What is the percentage subsidy that generates the same fraction of insured as in part (b)? (10 points) Masomenos, a premier health insurer, was asked by Verycheap Inc. to provide a quote on a health insurance policy for its employees. Masomenos evaluates that Verycheap's employers' projected yearly health expenditures are uniformly distributed between $0 and $4,000. It also estimates that each em- ployer values such health expenditures $400 more than the actual cost. Finally, consider that Masomenos incurs in administrative costs of $100 per insured em- ployee. (a) What price will Masomenos quote? What is the fraction of employees that will buy insurance? What is the expected health expenditures of the health- iest insurance subscriber? (10 points) (b) Now assume that Verycheap decides to subsidize insurance, by paying $100 to every employee that subscribes. What price will Masomenos quote? What is the fraction of employees that will buy insurance? What is the expected health expenditures of the healthiest insurance subscriber? (10 points) (c) Finally, assume that Verycheap's subsidy is ad-valorem, i.e. is expressed as a percentage of the insurance premium. What is the percentage subsidy that generates the same fraction of insured as in part (b)? (10 points)

Answer rating: 100% (QA)

a Masomenos will quote an insurance premium of 3600 The expected health expenditure of the healthiest insurance subscriber is 0 The fraction of employ... View the full answer