Suppose a Large Firm Allows Its Employees to Choose Whether

question 147

Multiple Choice

Suppose a large firm allows its employees to choose whether to participate in its health insurance plan.The firm is trying to decide between two plans: Plan I has a low monthly premium but a high deductible, and Plan II has a high monthly premium but a low deductible.Under which plan is adverse selection likely to be a bigger problem?

• A)Plan I because it is likely to draw participants who expect high medical costs. This group expects to consume much health care services and therefore prefer low deductibles.
• B)Plan II because it is likely to draw participants who expect high medical costs. Healthy individuals who do not expect to consume much health care services will not be willing to pay the high premiums.
• C)Plan I because it is likely to draw the relatively healthy employees who do not expect to spend much on health care. Because the monthly premiums are low, the insurance company has to bear a bigger financial burden in the event of serious illnesses.
• D)Plan II because it is likely to draw employees who tend to over-consume health care services because of the low deductible. Insurance companies are likely to end up paying out more claims than the premiums they collect.

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Definitions:

Sodium-Containing

Referring to substances or foods that include sodium, an essential mineral that has various functions in the body but can be harmful in excess.

Isotonic IV Fluid

Isotonic IV fluid is a type of intravenous solution that has the same osmolarity as bodily fluids, commonly used for hydration and replenishment of lost fluids without causing cell shrinkage or swelling.

Pitting Edema

A condition where pressure applied to the skin leaves an indentation, often indicating fluid accumulation in tissues.

Dextrose

A simple sugar that is chemically identical to glucose, used medically as an energy source and in treating hypoglycemia.