Question

Which of the following studies provide evidence of a positive risk-coverage correlation? a. Fang et al. (2008) find that it is the healthier Medicare beneficiaries, rather than the sicker ones, who disproportionately choose to purchase a supplement insurance policy known as Medigap. b. Cawley and Philipson (1999) study mortality data in the US and find that life insurance holders tend to live longer. C. Finkelstein and McGarry (2006) study a dataset of US retirees and find that the insured are no more likely to enter nursing homes than the uninsured are. d. Marquis and Phelps (1987) find that RAND HIE participants with high predicted costs were more likely to want supplemental insurance.

Answer 1

Option D, Marquis and Phelps (1987), provides evidence of a positive risk-coverage correlation, where individuals with high predicted healthcare costs were more likely to seek supplemental insurance. The other options do not illustrate a direct correlation between risk anticipation and the pursuit of additional coverage.

Step-by-step explanation:

Among the studies provided, option D, Marquis and Phelps (1987) find that RAND Health Insurance Experiment (HIE) participants with high predicted costs were more likely to want supplemental insurance, provides evidence of a positive risk-coverage correlation. This phenomenon is indicative of the idea that individuals who anticipate higher healthcare costs are more likely to seek additional insurance coverage to mitigate their risk. This is contrasted with options A, C, and B, which do not directly illustrate a correlation between perceived risk and the likelihood to obtain additional insurance coverage.

Options such as Fang et al. (2008) show healthier Medicare beneficiaries selecting Medigap, and Finkelstein and McGarry (2006) find no difference in nursing home entry rates between the insured and uninsured, which do not necessarily demonstrate a clear risk-coverage correlation. Cawley and Philipson (1999) find that life insurance holders live longer, which could be due to a variety of factors, and does not alone provide a direct example of a risk-coverage relationship.