Week 5
From Chapter: HEALTH INSURANCE MARKET AND THE DEMAND FOR HEALTH INSURANCE
Please answer the following questions.
1. What is adverse selection? How does its existence affect the market for health insurance? What are some ways insurance companies protect themselves from adverse selection?
2. What is moral hazard and how does it affect the demand for health insurance? What approaches do insurance companies use to control its existence?
3. How will a change in price affect the demand for health insurance? Discuss each of the factors affecting the demand for health insurance. Indicate the effect that each has on demand.
4. What is the difference between “experience” rating and “community” rating? Under which pricing system do insurers have an incentive to engage in preferred risk selection?
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