To remain financially sound, health insurance companies
must charge higher rates to insure people considered a
higher risk. Lacking complete information about
individuals, insurers are forced to set a standard rate,
based on the average risk of the group, for a particular
segment of the population. Consumers in poor health are
willing to pay for the insurance, knowing that it will cover
their higher-than-average health-care costs. In contrast,
healthy consumers often decide to forgo the insurance,
reasoning that it is less expensive to pay out-of-pocket
for their lower-than-average health-care costs. The result,
called “adverse selection,” is that the riskier members of
a group will comprise the group of insurance applicants,
potentially leading to a market failure in which insurance
companies cannot afford to offer insurance at any price.
Among people over age sixty-five, even the wealthy can
have difficulty obtaining fairly priced medical insurance,
simply because of their age. However, those who blame
so-called insurance company greed and discrimination
against the elderly are ignoring the reality of adverse
selection. Younger people generally obtain health
insurance through their employers’ group insurance plan.
Employer’s plans obligate all employees to enroll in the
plan and effectively pre-screen for general health, as a
minimum health level is required to hold a job. Insurance
companies can therefore charge a lower premium, based
on the lower average risk of the employee pool, without
worrying that healthy employees will opt out of the plan.
Consumers over sixty-five, typically not employed and thus
seeking insurance individually, are necessarily more
vulnerable to market failure stemming from adverse
selection.
1. It can be inferred from the passage that unemployed
people
· always pay higher health insurance premiums than
employed people
· cannot purchase health insurance
· are not as healthy, on average, as employed people
· opt out of the workforce for health reasons
· must work in order to acquire health insurance
2. The author refers to “greed and discrimination” in
the second paragraph of the passage in order to
· provide an example of the way some consumers are
treated unfairly
· explain how medical insurance pricing decisions are
justified
· accuse employers of failing to solve the problem of
adverse selection
· identify causes of adverse selection
· identify an alternate explanation that the author
disputes
3. The primary purpose of the passage is to
· advocate for change on behalf of consumers
· explain why a market failure occurs
· introduce recently discovered information
· challenge a widely accepted explanation
· argue that a situation is morally wrong
4. Which of the following best describes the function of
the first paragraph within the passage as a whole?
· It states an opinion that is supported elsewhere in
the passage.
· It outlines a process that is critiqued elsewhere in
the passage.
· It advances an argument that is disputed elsewhere
in the passage.
· It introduces conflicting arguments that are reconciled
elsewhere in the passage.
· It defines a problem that is cited elsewhere in the
passage.
5. The passage states which of the following about the
cost of health-care?
· It is generally higher for people with poor health.
· It is generally higher for full-time workers.
· It is not fairly priced in the current market.
· It has been rising in recent years.
· It will soon be too high for younger workers to afford.![]()
must charge higher rates to insure people considered a
higher risk. Lacking complete information about
individuals, insurers are forced to set a standard rate,
based on the average risk of the group, for a particular
segment of the population. Consumers in poor health are
willing to pay for the insurance, knowing that it will cover
their higher-than-average health-care costs. In contrast,
healthy consumers often decide to forgo the insurance,
reasoning that it is less expensive to pay out-of-pocket
for their lower-than-average health-care costs. The result,
called “adverse selection,” is that the riskier members of
a group will comprise the group of insurance applicants,
potentially leading to a market failure in which insurance
companies cannot afford to offer insurance at any price.
Among people over age sixty-five, even the wealthy can
have difficulty obtaining fairly priced medical insurance,
simply because of their age. However, those who blame
so-called insurance company greed and discrimination
against the elderly are ignoring the reality of adverse
selection. Younger people generally obtain health
insurance through their employers’ group insurance plan.
Employer’s plans obligate all employees to enroll in the
plan and effectively pre-screen for general health, as a
minimum health level is required to hold a job. Insurance
companies can therefore charge a lower premium, based
on the lower average risk of the employee pool, without
worrying that healthy employees will opt out of the plan.
Consumers over sixty-five, typically not employed and thus
seeking insurance individually, are necessarily more
vulnerable to market failure stemming from adverse
selection.
1. It can be inferred from the passage that unemployed
people
· always pay higher health insurance premiums than
employed people
· cannot purchase health insurance
· are not as healthy, on average, as employed people
· opt out of the workforce for health reasons
· must work in order to acquire health insurance
2. The author refers to “greed and discrimination” in
the second paragraph of the passage in order to
· provide an example of the way some consumers are
treated unfairly
· explain how medical insurance pricing decisions are
justified
· accuse employers of failing to solve the problem of
adverse selection
· identify causes of adverse selection
· identify an alternate explanation that the author
disputes
3. The primary purpose of the passage is to
· advocate for change on behalf of consumers
· explain why a market failure occurs
· introduce recently discovered information
· challenge a widely accepted explanation
· argue that a situation is morally wrong
4. Which of the following best describes the function of
the first paragraph within the passage as a whole?
· It states an opinion that is supported elsewhere in
the passage.
· It outlines a process that is critiqued elsewhere in
the passage.
· It advances an argument that is disputed elsewhere
in the passage.
· It introduces conflicting arguments that are reconciled
elsewhere in the passage.
· It defines a problem that is cited elsewhere in the
passage.
5. The passage states which of the following about the
cost of health-care?
· It is generally higher for people with poor health.
· It is generally higher for full-time workers.
· It is not fairly priced in the current market.
· It has been rising in recent years.
· It will soon be too high for younger workers to afford.