# Suppose your company is considering three health insurance policies. The first policy requires no tests and covers

## Question:

a. Suppose that the incidence of HIV in the population is 0.005. Calculate the annual premium of the first policy.

b. If you don’t have insurance that covers HIV-related illnesses, the probability of getting HIV is 1%. If you have insurance that covers HIV-related illness, suppose that the probability of getting HIV is 2%. Calculate the premium of the second policy. Show your calculations.

c. In Question 20-3b, suppose the insurance company wants to encourage low-risk behavior by individuals who have insurance. On average, it “costs” individuals $100 to engage in low-risk behavior. Assume that if people get HIV, they pay the deductible; and if they do not get HIV, they do not pay the deductible. How high must the deductible be to encourage low-risk behavior?

d. Calculate the premium of the third policy. Show your calculations.

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**Related Book For**

## Managerial Economics A Problem-Solving Approach

**ISBN:** b00btm8fk0

2nd Edition

**Authors:** Luke M. Froeb, Brain T. Mccann