Since the introduction of the Impanian National Health Scheme, Impanians (or their private insurance companies) have had to pay only for the more unusual and sophisticated medical procedures. When the scheme was introduced, it was hoped that private insurance to pay for these procedures would be available at modest cost, since the insurers would no longer be paying for the bulk of health care costs, as they had done previously. Paradoxically, however, the cost of private health insurance did not decrease but has instead increased dramatically in the years since the scheme’s introduction.
Boil it down-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!
Which one of the following, if true, does most to explain the apparently paradoxical outcome?
(A) The National Health scheme has greatly reduced the number of medical claims handled annually by Impania’s private insurers, enabling these firms to reduce overhead costs substantially.-- deepens paradox
(B) Before the National Health scheme was introduced, more than 80 percent of all Impanian medical costs were associated with procedures that are now covered by the scheme. -- deepens paradox
(C) Impanians who previously were unable to afford regular medical treatment now use the National Health scheme, but the number of Impanians with private health insurance has not increased. --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) Impanians now buy private medical insurance only at times when they expect that they will need care of kinds not available in the National Health scheme. --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.
(E) The proportion of total expenditures within Impania that is spent on health care has declined since the introduction of the National Health scheme. --doesn't go either way - we care about the insurance companies in particular, not about the general spending patterns in this mythical country.
Answer D
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