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To remain financially sound, health insurance companies must

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To remain financially sound, health insurance companies must [#permalink] New post 04 Jun 2013, 13:36
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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
[Reveal] Spoiler:
C


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
[Reveal] Spoiler:
E


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
[Reveal] Spoiler:
B


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.
[Reveal] Spoiler:
E


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.
[Reveal] Spoiler:
A


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Re: To remain financially sound, health insurance companies must [#permalink] New post 05 Jun 2013, 10:39
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Nice passage Carcass, here are my answers:

1. It can be inferred from the passage that unemployed people

C)are not as healthy, on average, as employed people
Unemployed people could be over 65, so considered not healthy, or could not have met the minimum requirement to be hired.
Even if there are other possible causes, ON AVERAGE, they are less healthy.


2. The author refers to “greed and discrimination” in
the second paragraph of the passage in order to

E)identify an alternate explanation that the author disputes
It offers a second point of view about the A.S.

3. The primary purpose of the passage is to

D)challenge a widely accepted explanation
It challenges the concept of A.S. providing a new explanation

4. Which of the following best describes the function of
the first paragraph within the passage as a whole?

· It outlines a process that is critiqued elsewhere in the passage.
The first paragraph presents how health insurance companies work, how they remain financially sound. This matter is then critiqued in the passage

5. The passage states which of the following about the
cost of health-care?

A) It is generally higher for people with poor health.
It was between A and C. Not sure on this one but I go with A

Waiting for the OAs :)
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Re: To remain financially sound, health insurance companies must [#permalink] New post 06 Jun 2013, 04:32
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1.
The role of employer health insurance plans is discussed in the second paragraph.
The passage states that “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.” This implies that having a job is a sign of health, since people
in poor health would have trouble performing job duties.
(A) By using the word “always,” this statement goes too far. Although the second
paragraph explains why insurance companies are more likely to offer reasonably
priced health insurance to employees in a group health plan, the first paragraph
discusses the role of consumer choice: consumers can (and do) decide to forgo
insurance that they deem too expensive. Therefore, we cannot infer that unemployed
people always pay higher health insurance premiums than employed people.

(B) By using the word “cannot,” this statement goes too far. The passage states that
some unemployed consumers, such as those over sixty-five, “can have difficulty
obtaining fairly priced medical insurance,” but that does not means that they cannot
purchase health insurance at all.

(C) CORRECT. The passage implies that having a job is a sign of health, since
people in poor health would have trouble performing job duties. Therefore, since the
group of unemployed people includes those too sick to work, it is not as healthy, on
average, as the group of employed people.

(D) The passage does not discuss the reasons people participate or decline to
participate in the workforce. We cannot infer that the unemployed voluntarily opted
not to work for health reasons.

(E) By using the word “must,” this statement goes too far. The passage does not
discuss the many reasons people might work: to make money, to acquire health
insurance, to gain personal satisfaction, etc. Some workers might not really need or
want health insurance, and might work primarily for the paycheck. Additionally, we
cannot infer that health care must be acquired by holding a job. The second
paragraph mentions consumers over sixty-five, who are “typically not employed and
thus seeking insurance individually.” Clearly, individual insurance is an alternative to
employers' group insurance plans, even if it is more expensive.

2.
The passage states that “people over age sixty-five…can have difficulty obtaining
fairly price medical insurance.” The explanation that the author supports, known as
“adverse selection,” was detailed in the first paragraph. Further, the context of the
reference reveals the author’s intent: “However, those who blame so-called
insurance company greed and discrimination against the elderly are ignoring the
reality of adverse selection.”

(A) The author does not provide an example, but rather takes a dim view of the belief
that “greed and discrimination” are the root cause of the consumer problem
described.

(B) “Greed and discrimination” are not presented as justifications of medical
insurance pricing decisions.

(C) The author does not accuse employers; in fact, the author goes on to explain
how employer provided group insurance plans benefit some insurance consumers.
(D) The causes of adverse selection were explained in the first paragraph. The
author mentions “greed and discrimination” to point out an alternate explanation for
the same result.

(E) CORRECT. The author believes that “adverse selection” is the reason that the
elderly can have difficulty obtaining fairly priced insurance. Other people believe that
“greed and discrimination” are the reasons. The author disputes that explanation by
stating that such people are “ignoring the reality of adverse selection.”

3.
The first paragraph of the passage describes the behavior of both insurance
companies and consumers. The paragraph is summed up with the statement “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.” The
second paragraph explains how adverse selection affects one segment of the
population (those over age 65).

(A) The author of the passage does not advocate on behalf of consumers, but rather
explains a situation faced by both consumers and insurance companies.

(B) CORRECT. The first paragraph defines adverse selection and explains that the
situation is considered a market failure. The second paragraph explains how
adverse selection affects one segment of the population.

(C) The information presented is not described as “recently discovered.”

(D) In the second paragraph, the author challenges those who “hysterically blame
so-called insurance company greed and discrimination against the elderly.”
However, the passage does not indicate that this explanation, placing blame on the
insurance companies, is "widely" accepted.

(E) The passage does not assert that the situation discussed is “morally wrong";
rather, it just explains why the situation occurs.

4.
To answer this question, look at the structure of the author’s argument. The first
paragraph describes the motives and behavior of consumers and insurance
companies, defining a problem called “adverse selection.” The second paragraph
discusses the effect of this situation on a specific group of people, those over age
sixty-five.

(A) The first paragraph does not state an opinion.

(B) The first paragraph outlines the decision making process of both consumers and
insurance companies, but that process is not critiqued elsewhere in the passage.

(C) The author does not advance an argument in the first paragraph, but rather
presents a scenario as factual.
(D) The author does not advance arguments in the first paragraph, but rather
presents a scenario as factual.

(E) CORRECT. The first paragraph describes a situation and defines it as “adverse
selection.” The remainder of the passage discusses the effect of the problem on a
certain group, ending with the statement that “consumers over sixty-five...are
necessarily more vulnerable to market failure stemming from adverse selection.”


5.
The majority of the passage concerns health insurance costs, which are distinct from
the costs of the underlying health-care itself. The author discusses the cost of health-
care only in the middle of the first paragraph, explaining that healthy consumers
incur lower-than-average health-care costs, while consumers in poor health incur
higher-than-average costs.

(A) CORRECT. The first paragraph of the passage states that “consumers in poor
health…[know] that [insurance] will cover their higher-than-average health-care
costs.”

(B) The passage does not compare the cost of health-care for full-time workers to
that for any other segment of the population.

(C) Although paragraph two mentions that some consumers have difficulty finding
fairly priced insurance, the passage does not assert that the cost of health-care itself
is unfair.

(D) The passage does not discuss any changes in health-care costs over time.

(E) The passage does not make any assertions about what might happen in the
future, and does not discuss younger workers in particular.
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Re: To remain financially sound, health insurance companies must [#permalink] New post 02 Oct 2013, 05:15
it is easy to understand ..........
Re: To remain financially sound, health insurance companies must   [#permalink] 02 Oct 2013, 05:15
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