There is an insurance company and three customers, Alice, Bob and John. The timing is as follows.(1) The insurance company announces the premium and excess of a health insurance policy.(2) At Date 1, each customer decides whether to purchase the health insurance policy.(3) At Date 2, each customer will discover their health status, which is either G (healthy) or B (needing treatment inhospital).(4) Nothing happens if a customer is healthy. If a customer needs treatment in hospital, then they pay $10,000 if theydo not hold a health insurance or the excess of the policy if they do. They are cured after treatment in hospital.For simplicity, assume that the insurance company is a monopolist.Each customer has the following utility index: 𝑢(−𝑥1) + 11.02 𝑢(−𝑥2), where 𝑥𝑡 is the payment (either to the insurancecompany or to the hospital) at Date 𝑡 and 𝑢(−𝑥) = 40000√1 − (𝑥∕20000) − 40000. Table 1 summarizes each customer’sage and probability of remaining healthy.Name Age Probability of GAlice 25 99.5%Bob 25 98%John 60 95%(a) First, assume that the insurnace company offers the policy with premium $210 and excess $750. Who would like tobuy this policy? (You should find that Bob and John would like to buy the policy.)(b) David is also 25 years old and will remain healthy with probability 98% at Date 2. Unlike Bob, David’s utility indexis −𝑥1 + 11.02 (−𝑥2). Show that David does not want to buy the insurance policy in (a).(c) Note that David and Bob are equally healthy, what makes one buy the insurance policy and the other does not?(d) Next, assume that the insurance company offers the policy with premium $530 and excess $500. Who would like tobuy this policy?(e) From the insurance company’s perspective, describe the potential problem of selling only one of the two policies in(a) and (d)

Multiple Choice QuestionIf your health insurance policy has a limit of $1,000 per hospital day, and your hospital charges $900 per day:Multiple choice question.the entire $9,000 will be covered.the entire $900 will be covered.the entire $1,000 will be covered.the entire $100 will be covered.

Consider an insurance company that offers a standard contract with the premium r=$300 and payout q=$500 to anyone who will purchase it. Alice has healthy-state income I_H=$700 and sick-state income I_S=$0. He has probability of illness p=0.6.Answer the following questions.If Alice purchases the insurance and stays healthy, her income will be $[C].If Alice purchases the insurance and ends up getting sick, her final income will be $[D].For Alice, the standard insurance contract is [E] (choose either fair or unfair) and [F] (choose either full or partial).

Question 2: Physician charges, insurance, and the government-imposed price ceiling (400 words)Note: This question aims to assess your understanding of market equilibrium in a demand-supply model through hypothetical scenarios.Suppose that physicians now charge $30 for an office visit and insurance policies require patients to pay 33.33% (or one-third) of the amount they pay the physicians, so the out-of-pocket cost to consumers is $10 per visit. In an effort to control costs, the government imposes a price ceiling of $27 per office visit, with one-third of this payable by consumers out-of-pocket.QuestionsIllustrate this situation using a properly labeled demand and supply diagram.Suppose, now that the price ceiling of $27 is in place, the government mandates the insurance companies to decrease the amount the patients have to pay to the physicians to 29.63%. Continuing with the demand and supply model in part (a), show and describe how this policy change would affect the market for health care.

Group insurance plans insure a large number of people under the terms of:

Which of the following statements is NOT correct?A.An excess is a part of the claim that the insured will need to pay out of pocket in the case of an adverse event.B.A premium is a regular payment made by the insured to the insurance company to be covered in case of an adverse event described in the insurance policy.C.The premiums for an insurance reflect the risk of the group in which the insured belongs and to some extent the personal circumstances of the individual, such as their record of past behaviour.D.A claim is a case where the insured will not be covered by the insurance policy if an adverse event occurs because the insured had misrepresented its actual circumstances.E.A benefit is a payment made by the insurance company to the insured when an adverse event occurs.