To remain financially sound, health insurance companies must charge hi

Question

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

A· always pay higher health insurance premiums than employed people
B· cannot purchase health insurance
C· are not as healthy, on average, as employed people
D· opt out of the workforce for health reasons
E· must work in order to acquire health insurance

2 
 2. 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

3 
 3. The primary purpose of the passage is to

A· advocate for change on behalf of consumers
B· explain why a market failure occurs
C· introduce recently discovered information
D· challenge a widely accepted explanation
E· argue that a situation is morally wrong

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

A· It states an opinion that is supported elsewhere in the passage.
B· It outlines a process that is critiqued elsewhere in the passage.
C· It advances an argument that is disputed elsewhere in the passage.
D· It introduces conflicting arguments that are reconciled elsewhere in the passage.
E· It defines a problem that is cited elsewhere in the passage.

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

A· It is generally higher for people with poor health.
B· It is generally higher for full-time workers.
C· It is not fairly priced in the current market.
D· It has been rising in recent years.
E· It will soon be too high for younger workers to afford.

Carcass · Accepted Answer

OFFICIAL SOLUTIONS:

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...  that   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.

Zarrolou · Answer

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

Rumikido3 · Answer

8.7 min.... 3/5 correct answers.
Got Q1 and Q2 wrong

Thanks a lot  carcass !! Great passage!

My analysis of the reading and my wrong questions is below.

Structure  
1st Contrast of 2 groups- customers (healthy-low risk vs no healthy-high risk) + decision for insurance help to explain "Adverse selection".
 AS could -->  market failure. 
2nd 2 groups - customers (young-employed vs elders-unemployed) are compared-  accessibility to health insurance + risk to be affected by market failure.

Purpose:  Explain the implications of "adverse selection" and groups affected by possible market failure in health insurance.

Answer choice analysis

1. It can be inferred from the passage that unemployed people
A)  always  pay higher health insurance premiums than employed people.  Incorrect
"Always" is too extreme. Since the passage says that "Younger people  generally  obtain health insurance through their employers’ group insurance plan" we can not assume that all young people are employed.. there are some that could be unemployed, but the age make them pay lower rates. (for example lower than some employed elders (+65)) 
B)  cannot  purchase health insurance.  Incorrect. Elders, (+65) typically unemployed, have difficulty to obtain a health insurance, but it don't mean that they cannot purchase, they could just be paying high rates. 
C) are not as healthy, on average, as employed people.  Correct
Since they are unemployed, they may belong to one of these groups: People who didn't get a job because they don't pass the minimum health levels required by companies, or elder people (+65) typically unemployed) 
D) opt out of the workforce  for health reasons. Incorrect. Reasons not stated. 
E)  must  work in order to acquire health insurance.  Incorrect. The passage doesn't mention this extreme action (Must work) to get health insurance. Some elders (typically unemployed) can get a health insurance with higher rates.

2. 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.  Incorrect. Not providing example, but providing reasons. 
B) Explain how medical insurance pricing decisions are justified.  Incorrect. The reference is not to explain the justification of medical insurance pricing decisions, but the difficulty of some people (+65) in obtaining fairly priced health insurance 
C) Accuse employers of failing to solve the problem of adverse selection.  Incorrect. Ability of employers to solve the problem is not in discussion. 
D) Identify causes of adverse selection.  Incorrect. Author states that adverse selection is the cause of why elders (+65) can have hard time getting fairly priced medical insurance and disputes the idea of "greed and discrimination" as the real cause. 
E) Identify an alternate explanation that the author disputes.  Correct
They author refers to "greed and discrimination" to provide the explanation of some people about why elders (+65) "can have difficulty obtaining fairly priced medical insurance". So the author disputes this alternative explanation by pointing out that the real reason is adverse selection.

Hope it helps!

Masterscorp · Answer

I have a question about question 3:
 
B) states: "Explain why a market failure occurs". I precluded this option because it didn't state "a certain market failure". To my understanding this answer implies that the passage explains how a market failure in general can occur. This obviously isn't the case so I thought it was wrong.

I personally chose D) because it was the most viable answer of the remaining choices.

So my question is: Can we imply that answer B) talks about a  specific  markt failure even that isn't mentioned?

MBAB123 · Answer

You probably don't need this explanation anymore but dropping this here in case anybody has a similar doubt. IMO you don't have to consider a specific market failure? You can simple look at B in a general manner. Yes, it talks about "a" market failure. It could by any, but it is still a market failure so our answer is correct. B is only saying that "hey is the passage explaining a market failure? Idk which failure in particular but is it a market failure?" And the answer to that is yes. So your thought process is not wrong.

Rickooreo · Answer

carcass   AndrewN   KarishmaB   GMATNinja   EMPOWERgmatVerbal 
 MartyTargetTestPrep 
 ReedArnoldMPREP

(Apologies for posting one of the question part of TTP paid course. It is to learn a concept. Let me know if the image should be deleted)

and all GMAT Expert
I always face issue in answering the question which states : "Why is particular line/ word mentioned in the passage". Some of the answers are based on the logic that stick to the line (Q2 here) and the attached image, where the answer is option   E (specific point) and not option D (larger point) and some of the answers are based on looking at the larger point (refer RC link).

For Q2, 
Second paragraph in passage starts as :

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

Interpretation : People think it is not fairly priced but it is actually fairly priced since these people are ignore the reality of adverse selection.

Basis this Option B seems to be correct.

I understand that when author is asking why is particular line mentioned / reason for mentioning a particular word, we should look at the larger point in the passage.

Refer to the following passage Q3 for reference. 
 https://gmatclub.com/forum/women-around-the-world-graduate-from-college-at-higher-rates-than-men-308218.html 
In this question, if we look at larger purpose then only option B is correct. Else option C seems to be the contender (referring to RC with Kaplan as the source)

Rickooreo · Answer

I always face issue in answering the question which states : "Why is particular line/ word mentioned in the passage". Some of the answers are based on the logic that stick to the line (Q2 here) and the attached image, where the answer is option [alert for the OA] E (specific point) and not option D (larger point) and some of the answers are based on looking at the larger point (refer RC link).

For Q2,
Second paragraph in passage starts as :

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

Interpretation : People think it is not fairly priced but it is actually fairly priced since these people are ignore the reality of adverse selection.

Basis this Option B seems to be correct.

I understand that when author is asking why is particular line mentioned / reason for mentioning a particular word, we should look at the larger point in the passage.

Refer to the following passage Q3 for reference.
https://gmatclub.com/forum/women-around ... 08218.html

In this question, if we look at larger purpose then option B seems to be incorrect

KarishmaB · Answer

Every word that the author writes in a passage is written to bring across his point which is the main idea of the passage. Then if you were to focus on the "big picture" your answer to every such question would be the main idea of the passage. But that is not possible. 
When the question asks for the function of a certain word/sentence etc, you need to focus on the role played by that word in its immediate vicinity (as done in the TTP question you shared above).

Carcass · Answer

Wowwww. I saw the date and I posted this passage 11(eleven) years ago

EXPLANATION OF THE PASSAGE To remain financially sound, health insurance companies must charge higher rates to insure people considered a higher risk. Ok. the insured who are at higher risk must pay more. 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. For a certain group of people (a cluster) the insurance companies set a bar. average of the risk higher, then if you are part of this specific cluster you pay more on average regardless your personal risk is even a bit less Consumers in poor health are willing to pay for the insurance, knowing that it will cover their higher-than-average health-care costs. Who is in poor health condition is also favorable to pay more to have , as a consequence, a greater cover for having major 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. On the flip side of the coming, who is in good health is happy to pay from their own pocket if something happens because the risk is lower 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. gathering all the people with the higher risk and therefore more costs to sustain we do have the result that this scenario in the long run is not sustainable Among people over age sixty-five, even the wealthy can have difficulty obtaining fairly priced medical insurance, simply because of their age. Clear by itself However, those who blame so-called insurance company greed and discrimination against the elderly are ignoring the reality of adverse selection. The adverse selection is an ineluctable fact and the critics are not substantial 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. If you opt for our plan you will have a discount essentially. Young people who are employee and in discrete health or good Consumers over sixty-five, typically not employed and thus seeking insurance individually, are necessarily more vulnerable to market failure stemming from adverse selection. The problem, from a financial standing point are the elder

Carcass · Answer

QUESTION #1

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.

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

A· always pay higher health insurance premiums than employed people

Reading sentence by sentence the explanation of the passage nowhere is stated that

B· cannot purchase health insurance

never mention the purchase

C· are not as healthy, on average, as employed people

True: also form the sentence atop

D· opt out of the workforce for health reasons

No seen that in the passage

E· must work in order to acquire health insurance

must work......mhhhh never mentioned

Carcass · Answer

QUESTION #2

However, those who blame so-called insurance company greed and discrimination against the elderly are ignoring the reality of adverse selection.

2. 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

No at all. the sentence above tells us that who says negative things about insurance companies ignore certain key elements by the companies for doing so

B· explain how medical insurance pricing decisions are justified

Not really. the concept is the adverse selection. the prices come afterward

C· accuse employers of failing to solve the problem of adverse selection

Off completely

D· identify causes of adverse selection

we do know what it is but not extensively the real cause or multiple of them

E· identify an alternate explanation that the author disputes

The author says that IC charge a lot in term of prices and we do know also that this could be unfair but the reality and that we ignore the entire truth. E is the possible explanation why all this scenario is in place

Carcass · Answer

QUESTION #3

3. The primary purpose of the passage is to

A· advocate for change on behalf of consumers
B· explain why a market failure occurs
C· introduce recently discovered information
D· challenge a widely accepted explanation
E· argue that a situation is morally wrong

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.

The gist is the adverse selection >>> failure >>> why that. at least some reasons why

B easy

Carcass · Answer

QUESTION #4

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

A· It states an opinion that is supported elsewhere in the passage.
B· It outlines a process that is critiqued elsewhere in the passage.
C· It advances an argument that is disputed elsewhere in the passage.
D· It introduces conflicting arguments that are reconciled elsewhere in the passage.
E· It defines a problem that is cited elsewhere in the passage.

I do not want to say that this question is easy. However, often the students overcomplicate what indeed not so-difficult

Just take a look at the first words of the choices

A· It states an opinion .......................NO
B· It outlines a process .......................NO
C· It advances an argument .......................NO
D· It introduces conflicting arguments .................. NO
E·   It defines a problem   .............................YES

To remain financially sound, health insurance companies must charge higher rates to insure people considered a higher risk.

I am the insurance company and I do not want to be in bankruptcy. I have to put under control the costs.  This is my problem. That's it

Carcass · Answer

QUESTION #5

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

A· It is generally higher for people with poor health. YES
B· It is generally higher for  full-time workers. Never mentioned full time worker but just employee 
C· It is  not fairly priced  in the current market. NO
D· It has been  rising in recent years.  NO
E· It  will soon be too high  for younger workers to afford. NO

VerbalBot · Answer

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To remain financially sound, health insurance companies must charge hi

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