Question

2] Suppose the government of Orwellia decides to genetically test all individuals for the risk of major illness, and reports the results of these tests to potential insurers when people apply for individual health insurance coverage. Will healthy people find working for large firms more, less, or equally attractive than before this testing program began? What about unhealthy peo- ple? Explain.

Answer 1

Health insurance is a measure to protect te insurers financially if and when they fall sick or face any health issues. Thus the k surer may be paying a small premium for a relatively larger sum assured which he can avail if and when he falls sick. The insurance company is making money on the law of large numbers where the probability of a person falling sick and claiming the whole sum assured is less when the population considered is large enough. Now if the insurance company is pricing the probability of the person falling sick in the premium charged and thus quoting a high premium, the insurance company is making double the money, one from the law of large numbers and second from the extra premium charged based on the genetical tests.

Thus today is a person who is healthy go to an insurance agent for a health insurance policy and he charges the person a high premium for a potential health issue, then that is unfair and an unattractive deal for the insurer because if he is already paying a high premium for a probable investment health issue, he might as well just save the money in his bank account and use it if and when he falls sick rather than paying a high premium for a insurance policy which he can use only if and when he falls sick.

For an unhealthy person, there is a assurity of falling sick due to his health condition. Thus this change does not impact him or did decision to take a health insurance as he is sure to claim the sum insured for his illness.