Final answer:
The insurer must pay nothing on Christine's claim due to a fraudulent statement made on the application, as it was discovered after the incontestable period and the policy is not guaranteed renewable. Insurers use cost-sharing methods like deductibles, copayments, and coinsurance to reduce moral hazard, and charging an actuarially fair premium to the entire group could lead to adverse selection.
Step-by-step explanation:
In the scenario where Christine has a health insurance policy that has been in force beyond the incontestable period, and the insurer discovers a fraudulent statement made on the application, the typical outcome is b) The insurer must pay nothing. This is because, after the incontestable period, an insurer can only contest a claim based on fraudulent misrepresentations. As this policy is not guaranteed renewable, the misrepresentation provides grounds for the insurer to deny claims or possibly rescind the policy completely. However, the exact legal action would depend on the laws governing insurance in the specific jurisdiction as well as the terms of the insurance policy.
Moral hazard can influence insurance premiums and coverage, as insurers must account for the potential of exaggerated claims or riskier behavior that might increase the likelihood of a claim. One method to reduce moral hazard includes cost-sharing features such as deductibles, copayments, and coinsurance, which require policyholders to bear a portion of the costs, discouraging overutilization of insurance benefits.
Regarding premiums, if an insurance company tries to charge the actuarially fair premium to the group as a whole, rather than to each group separately, the premium may not accurately reflect the individual risk levels within the group. This could lead to adverse selection, where those with higher risk are more likely to buy insurance, while those with lower risk might choose not to, potentially resulting in financial losses for the insurer.