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605-655 Level|   Resolve Paradox|         
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noboru
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Since the introduction of the Impanian National Health Scheme, Impania Updated on: 22 Jan 2020, 03:32
Originally posted by noboru on 22 May 2010, 10:45.
Last edited by Bunuel on 22 Jan 2020, 03:32, edited 3 times in total.
Renamed the topic and edited the question.
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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.

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.

(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.

(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.

(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.

(E) The proportion of total expenditures within Impania that is spent on health care has declined since the introduction of the National Health scheme.
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D
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Since the introduction of the Impanian National Health Scheme, Impania 25 May 2010, 13:09
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seekmba
can someone explain the option (D) in more simple terms.
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Insurance makes it money by assuming that of the X amount of people that buy its service, only a small % will actually make a claim and cost the firm money.

In D)s case, it's stated that it's much more likely that people would buy the private insurance "only at times when they expect that they will need care of kinds not available in the National Health scheme."

Essentially, this mens the previously small % I spoke of earlier is going to way up. In order remain profitable, the insurer needs to increase price to compensate for the increased risk inherent with each new customer.

To illustrate with oversimplified numbers, say your insurance costs $10. If you make a valid claim you get $10,000

This is good for the insurer if they have a million customers each carrying a 0.01% risk of claiming because they dish out $1,000,000 in claims and take in $10,000,000.

But if that risk goes up to say, 2% ... That's 20,000 claimants which cost the company... erk, $200,000,000. How does the company not go bankrupt in three seconds? The raise the cost until their margins are met. Going from .01% to 2% is like a 200x increase in risk, so that $10 you were paying before is going to turn into $2000 to get things back to the way they used to be.
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Since the introduction of the Impanian National Health Scheme, Impania 13 Apr 2021, 03:30
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noboru
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.

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.

(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.

(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.

(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.

(E) The proportion of total expenditures within Impania that is spent on health care has declined since the introduction of the National Health scheme.
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OFFICIAL EXPLANATION



(A) No. This strengthens the paradox. If the National Health scheme cuts costs for private insurers, then their rates should decrease.

(B) No. This strengthens the paradox. If 80 percent of medical costs are now covered by the National Health scheme, then the private insurance rates should decrease.

(C) No. This is irrelevant.

(D) Yes. If people buy private insurance only when they expect to need it for unusual medical procedures not covered by the National Health scheme, then presumably fewer people have private health insurance than before the National Health scheme. Furthermore, a greater percentage of those with insurance will have claims (since people expect to require these procedures, perhaps because of a family history or because of the existence of early symptoms). Thus, the costs will be spread over a smaller pool of people while the costs themselves may not decrease as much. The net effect is that insurance premiums would rise.

(E) No. This is irrelevant.
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Since the introduction of the Impanian National Health Scheme, Impania 22 May 2010, 12:21
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noboru
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.
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. >>> If Private insurers can cut the overheads, then cost should go down. This doesn't solve the 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. >>> Again if major chunks of isurances/claims are handled by NHI, cost of private health insurance should go down.
(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. >>> IMO, Correct >>> If the number of cases handled by private health insurers remain same...then cost of private health insurance might not go down...!!
(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. >>> Refer to explanation for option B.
(E) The proportion of total expenditures within Impania that is spent on health care has declined since the introduction of the National Health scheme. >>> IMO, the cost of private health insurance should also go down.
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Argument Simplified :Before National Health Insurance (NHI), cost of private health insurance was high.
Now after NHI, the cost of private health insurance should go down(Reason given : private insurance companies have to pay only for the more unusual and sophisticated medical procedures).BUT, the cost of private health insurance is still high.

Wats the OA.
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Since the introduction of the Impanian National Health Scheme, Impania 22 May 2010, 12:25
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D, all the way:

noboru
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.
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. Usually if you reduce overhead you're going to either lower prices or enjoy a wider margin. Price hikes are better associated with overhead cost increases. So this runs counter to the 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. This seems only to restate what we already know... it does give us a better number but doesn't help explain the 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. This doesn't make the case as to why private cost has gone up... if they kept their same customer base then why the need to hike prices, dramatically or otherwise?

(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. This puts forth a supply and demand theory that we should all be familiar with. Demand for private health care dropped drastically... in order to compensate, private firms jacked up their prices... especially now that the likelihood of someone making a claim is naturally higher! This answer gives us two reasons why the situation occurred. I like it.

(E) The proportion of total expenditures within Impania that is spent on health care has declined since the introduction of the National Health scheme. Clearly out of scope!
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Since the introduction of the Impanian National Health Scheme, Impania 25 May 2010, 12:10
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can someone explain the option (D) in more simple terms.
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Since the introduction of the Impanian National Health Scheme, Impania 27 Dec 2015, 14:55
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oh, wow, tough one. took some time to answer it. D is the clear winner. Looks like a "solve the paradox" kind of question.
it was expected the costs of private insurance to decrease, but in reality, it increased.
the only explanation that could be is that clients buy private insurance only when they actually need special kind of procedures not covered by the regular one. D says exactly this.
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Since the introduction of the Impanian National Health Scheme, Impania 12 Dec 2017, 11:40
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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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Since the introduction of the Impanian National Health Scheme, Impania 07 Jan 2018, 21:31
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Although this question is a LSAT question, and the argument structure is quite complex, the question does sound like a gmat-like question.
Using POE, test takers can cross out A,B, and E.
C does not concern with why private insurances charge higher premiums.
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Since the introduction of the Impanian National Health Scheme, Impania 04 May 2021, 23:57
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Took me a while to see this. D) points out that the premiums for health insurance have gone up because the insurance companie's revenue has declined (people only buy insurance when needed).
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Since the introduction of the Impanian National Health Scheme, Impania 18 Sep 2021, 12:36
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I just did this LSAT, got 22/25 right and finished in less than 58 min. But, I got this qn wrong and I think this is the best question of the entire set.
You need to have very basic understanding of how insurance works. This is general knowledge in majority of the countries but not all. So, some folks miss it because they don't understand insurance as it is not common.
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Since the introduction of the Impanian National Health Scheme, Impania 07 Feb 2025, 09:13
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Good explanation Thanknyou for posting
dalmba
seekmba
can someone explain the option (D) in more simple terms.
Insurance makes it money by assuming that of the X amount of people that buy its service, only a small % will actually make a claim and cost the firm money.

In D)s case, it's stated that it's much more likely that people would buy the private insurance "only at times when they expect that they will need care of kinds not available in the National Health scheme."

Essentially, this mens the previously small % I spoke of earlier is going to way up. In order remain profitable, the insurer needs to increase price to compensate for the increased risk inherent with each new customer.

To illustrate with oversimplified numbers, say your insurance costs $10. If you make a valid claim you get $10,000

This is good for the insurer if they have a million customers each carrying a 0.01% risk of claiming because they dish out $1,000,000 in claims and take in $10,000,000.

But if that risk goes up to say, 2% ... That's 20,000 claimants which cost the company... erk, $200,000,000. How does the company not go bankrupt in three seconds? The raise the cost until their margins are met. Going from .01% to 2% is like a 200x increase in risk, so that $10 you were paying before is going to turn into $2000 to get things back to the way they used to be.
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