Tuesday, April 16, 2013

Short Essay Answer (2)

Here is an example of how to a suitable short essay answer. It shows the importance of having a short introduction or explanation of the question and provide the answer by explaining a few focused points. I hope that this is useful for students taking the examination.

Suppose that laws were passed that required insurers to charge everyone the same premium for health insurance regardless of age or health status. What effect would that have on the market for health insurance?

It is usual for the insurer to charge different premium rates for health insurance according to the age or health status, as they contribute to different expected claims. If laws were passed that require insurers to charge the same premium rate, the likely outcome would be:

1. The low risk people will be subsidizing the high risk people.
2. If health insurance is not compulsory, the low risk people will probably decide not to buy insurance
3. The insurance pool will comprise mainly of high risk people with high expected claims
4. The premium rate will increase for the pool.
5. If the premium is too high, the high risk people cannot afford the insurance. The market for health insurance will fall.

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