Question

Under what conditions is private insurance viable? Do we see these conditions satisfied in the real world?

A. Private insurance is viable when there's high government intervention, and yes, these conditions are often met.
B. Private insurance is viable when there's low risk, and yes, these conditions are often met.
C. Private insurance is viable when there's high risk, and no, these conditions are rarely met.
D. Private insurance is viable when there's low demand, and yes, these conditions are often met

Answer 1

Private insurance is viable when risk can be accurately assessed and segmented, often requiring government intervention to ensure coverage is accessible and affordable. In the U.S., this is reflected through government-funded programs like Medicaid and Medicare.

Step-by-step explanation:

Private insurance is viable under certain conditions. When insurance companies can accurately separate potential buyers into risk groups and price accordingly, the market for private insurance can sustain itself. However, this often implies excluding high-risk individuals from coverage. To address this, the involvement of government regulations and laws can be required, such as mandating that people with low risks purchase insurance, even at higher than actuarially fair rates.

In the real world, especially in the context of U.S. health care, the government intervenes when insurance through free markets is not affordable. The U.S. government funds programs like Medicaid and Medicare, which provide health insurance to those with low incomes, the elderly, and other specific groups. This indicates that while the conditions for the viability of private insurance are partly met, government involvement is often necessary to ensure comprehensive coverage.