10.3 Asymmetric Information In Health Insurance

Which of the following helps in reducing the problem of adverse selection in health insurance markets? High premiums Insurance coverage Insurance mandates High rates of taxation

In the market for health​ insurance, asymmetric information problems arise because: Health insurance policies always include clauses that only the companies understand. Privacy laws prevent the sellers of health insurance from asking buyers pertinent lifestyle questions. Buyers of health insurance policies always know more about the state of their health than do the insurance companies. The sellers of health insurance require medical exams that give them more information than the buyers normally have

Moral hazard refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off. (T/F)

A doctor pursuing his own interests rather than the interests of his patients is an example of the principal-agent problem. (T/F)

Adverse selection is a situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. (T/F)

In the United States, the bulk of health care spending is paid by health insurance companies. Such a system is also called a third-party payer system where consumers of health care pay a nominal fee and the rest are paid by the health insurance provider. Why might such a system lead to an inefficient outcome? Physicians concerned that insurance companies may not approve payments tend not to order expensive tests for their patients. Consumers fearing that excessive use of health care services may lead to a rise in insurance premiums tend to under-consume health care services. Health insurance companies have an incentive to control cost and therefore tend to deny consumers many cutting edge medical treatments. Consumers have an incentive to over-consume health care services because they pay prices well below the cost of providing these services.

Which of the following is a problem that arises in a health insurance market? There exists a fierce competition between the insurance providers. A disproportionate number of high-risk individuals are attracted to buy insurance. There are a large number of buyers of various insurance programs. Only risk-averse individuals buy insurance.

If a doctor knows that an insurance company will pay for most of a patient's bill, the doctor has more of an incentive to require additional medical procedures and tests, even if the patient may not require them. This is an example of: Moral hazard. Asymmetric information. Adverse selection. The principle-agent problem.

Adverse selection arises in the health insurance market because ________. Sellers have private information Different firms provide different insurance schemes The number of buyers and sellers is large Buyers have private information

_______ discourage low-risk individuals from seeking health insurance. Low premiums High premiums High costs of medical treatment Low interest rates