Question

Justin enrolls in health insurance that is a group of 600 people just like him. Each year, 8 of them are have an accident or get sick, with expenses of $9,000 each. With insurance, the full amount of the expenses are covered. In the competitive long run equilibrium, how much are the insurance premiums?

Answer 1

The annual insurance premium in a competitive long-run equilibrium for a group of 600 people, where each year 8 people incur expenses of $9,000 each, is $120 per person.

Step-by-step explanation:

To calculate the insurance premiums in a competitive long-run equilibrium for the group of 600 people involved in the scenario, we first need to determine the total expenses covered by the insurance. With 8 accidents or illnesses occurring annually, each costing $9,000, the total payouts would be 8 accidents per year multiplied by $9,000, which is $72,000 in total payouts. To find the insurance premium per person, we divide this total expense by the number of people in the group, which is 600. Therefore, the annual premium per person is $72,000 / 600, equal to $120 per year.