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# To remain financially sound, health insurance companies must

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Manager
Joined: 28 Mar 2009
Posts: 64
To remain financially sound, health insurance companies must  [#permalink]

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27 Jun 2009, 09:46
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.

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

(A) provide an example of the way some consumers are treated unfairly

(B) explain how medical insurance pricing decisions are justified

(C) accuse employers of failing to solve the problem of adverse selection

(D) identify causes of adverse selection

(E) identify an alternate explanation that the author disputes
Manager
Joined: 04 Jun 2008
Posts: 249

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27 Jun 2009, 11:45
(A) provide an example of the way some consumers are treated unfairly

It is not said that consumers are treated unfairly. Its a genuine concern for the insurance companies due to which they are forced to keep higher prices for people at high risk.

(B) explain how medical insurance pricing decisions are justified

"greed & discrimination" have nowhere been said to justify pricing decisions, this is the view that the author is actually refuting.

(C) accuse employers of failing to solve the problem of adverse selection

employers have nowhere been accused

(D) identify causes of adverse selection

"greed & discrimination" are NOT the causes of adverse selection, its the higher risk of some individuals.

(E) identify an alternate explanation that the author disputes

Correct, the alternate explanation for higher prices for some is that companies are greedy and discriminate in healthy and unhealthy people, which the author refutes in the passage by giving his explanation.
Manager
Joined: 15 Jan 2008
Posts: 245

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29 Jun 2009, 05:23
I will go with B as the answer..

the author refers to the words ' greed and decrimination' to bring about the point abt insurance companies which the author argues are not justified.

Manager
Joined: 28 Mar 2009
Posts: 64

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29 Jun 2009, 06:21
Hi Neochronic and rashminet84,

The Official explanation is:-

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.”
Intern
Status: Happy
Joined: 17 Jan 2011
Posts: 3
Location: USA

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18 Jan 2011, 22:37
I will go with the Answer B as well..
The author to the words ' greed and decrimination' to bring about the point abt insurance companies but they are not presented as justifications of medical insurance pricing decisions...Is the answer right???
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Intern
Joined: 27 Jan 2011
Posts: 4

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31 Aug 2011, 22:40
OA - E

AUTHOR IS OPPOSING THE STATEMENT
However, those who blame
so-called insurance company greed and discrimination
against the elderly are ignoring the reality of adverse
selection
THOSE WHO BLAME means author is not blaming and author identifies these people who were blaming as ignorant
Senior Manager
Status: Active
Affiliations: NA
Joined: 23 Oct 2012
Posts: 269
GMAT 1: 590 Q50 V21
GMAT 2: 600 Q48 V25
GMAT 3: 730 Q51 V37
GPA: 3.5
Re: To remain financially sound, health insurance companies must  [#permalink]

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12 Dec 2014, 22:54
4. Which of the following best describes the function of
the first paragraph within the passage as a whole?
1. It states an opinion that is supported elsewhere in
the passage.
2. It outlines a process that is critiqued elsewhere in
the passage.
3. It advances an argument that is disputed elsewhere
in the passage.
4. It introduces conflicting arguments that are reconciled
elsewhere in the passage.
5. It defines a problem that is cited elsewhere in the
passage.
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Intern
Joined: 01 Sep 2016
Posts: 29
Re: To remain financially sound, health insurance companies must  [#permalink]

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20 Oct 2016, 02:24
wht is the level of difficultyof this passage
thanks
MBA Section Director
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Joined: 22 May 2017
Posts: 2093
Concentration: Nonprofit
GPA: 4
WE: Engineering (Computer Software)
Re: To remain financially sound, health insurance companies must  [#permalink]

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13 Oct 2018, 21:28
Re: To remain financially sound, health insurance companies must   [#permalink] 13 Oct 2018, 21:28
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