Table 1 (Ch10 Bhattacharya) has data on insurance status and medical expenditures for different types...
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Table 1 (Ch10 Bhattacharya) has data on insurance status and medical expenditures for different types of professors at a University. In 2014, every employee of the university was offered a full insurance contract at no premium. In 2015 , the university charged employees who wanted to keep this health insurance a $5,000 premium. As a result, all Biology professors dropped their coverage in 2015. Assume that the underlying healt of the professors did not change much from year to year. Table 1: Information from the human resources department at this university. a. Is there evidence of moral hazard in this market? How do you know? b. Is there evidence of adverse selection in this market? In other words, is there evidence that higher risk people buy more health insurance coverage (positive risk-coverage correlation)? Explain. c. Did biology profs drop coverage for reasons of moral hazard, adverse selection, or maybe both? d. Why is a positive correlation between risk and health expenditures not necessarily conclusive evidence of adverse selection
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