Q17 - Since the introduction of the Impanian

[b91302310]

In this question, I elimimated (A) and (B) since they support only part of the argument (the result hoped) and therefore do not solve the paradox.

However, could any one explain how to make selection among (C),(D) and (E)?

Thanks in advance.

[aileenann]

First, let's think about what the paradox is. The paradox is that now insurance companies don't have to pay for as many things as before, so they should in theory make their rates cheaper. But the opposite happens - even though they now pay for less, their rates have gone up!

Let's take a look at (C), (D), and (E):

(C) doesn't seem too relevant. We don't care whether the number of people with private insurance has gone up or down. That doesn't (unless you bring in outside knowledge) explain why the price would change, so this is not the answer.

(D) Ah ha! This sounds like the adverse selection problem we all study in insurance law. And more than that, it sounds like a good reason why the rates would go up. Now that normal people don't need private insurance for normal/average medical stuff, it's really only sick people or special people who need this special insurance. Therefore, all the ordinary people are going to drop out, and only people who need the procedures are going to get the insurance. So the insurance company may be paying out more relative to what it's taking in, since all the healthy people have gone to the National Health Plan. Bingo!

(E) doesn't go either way - we care about the insurance companies in particular, not about the general spending patterns in this mythical country.

I hope this helps

[b91302310]

Got it! Thanks a lot!

[nja21]

First, let's think about what the paradox is. The paradox is that now insurance companies don't have to pay for as many things as before, so they should in theory make their rates cheaper. But the opposite happens - even though they now pay for less, their rates have gone up!

Let's take a look at (C), (D), and (E):

(C) doesn't seem too relevant. We don't care whether the number of people with private insurance has gone up or down. That doesn't (unless you bring in outside knowledge) explain why the price would change, so this is not the answer.

(D) Ah ha! This sounds like the adverse selection problem we all study in insurance law. And more than that, it sounds like a good reason why the rates would go up. Now that normal people don't need private insurance for normal/average medical stuff, it's really only sick people or special people who need this special insurance. Therefore, all the ordinary people are going to drop out, and only people who need the procedures are going to get the insurance. So the insurance company may be paying out more relative to what it's taking in, since all the healthy people have gone to the National Health Plan. Bingo!

(E) doesn't go either way - we care about the insurance companies in particular, not about the general spending patterns in this mythical country.

I hope this helps

I think (C) is incorrect not because it is not too relevant (And we actually care about the number of people who subscribe to private companies, see A/C (D)), but because it does not necessarily help resolve the discrepancy. Note that (D) says the subscribers to private Insurance companies has declined and that is why the price has gone up. But in (C) it doesn't say it has declined. For all we know, the number might have stayed the same. So This answer does little to solve the problem.