Q. Assume your company is allowing for 3 health insurance policies. The 1st approach need no tests also covers all preexisting illnesses. The 2nd approach needs which all covered workers test negative for the HIV virus. The 3rd approach does not cover HIV or AIDS connected illnesses. All insurance policies are priced at their actually fair value. All persons are slightly risk-averse. A person with the HIV virus needs, on standard, $100,000 worth of medical care every yr. A person without the virus needs on an standard $500 worth of medical care every yr.

a. Assume which incidence of HIV in the population is .005. Compute the yearly premium of the 1st policy.

b. If you do not have insurance which covers HIV-connected illness, the probability of getting HIV is 1%. If you have insurance which covers HIV-connected illness, assume that the probability of getting HIV is 2%. Compute the premium of the 2nd policy. Demonstrate your calculations.

c. In part b, assume which insurance company needs to encourage low-risk behavior by persons who have insurance. On standard, it "costs" persons $100 to engage in low-risk behavior. Assume which if people get HIV, they pay the deductible; also if they do not get HIV, they do not pay the deductible. How high must the deductible be to encourage low-risk behavior?

d. Compute the premium of the 3rd policy. Demonstrate your calculations