Question

Would a “Community Rating” type of equilibrium exist if individuals are not mandated to buy the insurance? Explain.

Answer 1

Ans. It would be difficult for a Community Rating type of equilibrium to exist if individuals are not mandated to buy insurance. The main reason for the community rating to exist is because of the presence of Mandatory buying of insurance. This is because , when people are mandated to buy the insurance , the insurance companies don't worry about their customer base and thus can easily follow Community rating. But if there is no mandation , customers would reduce and the insurance companies may loose out on revenues and thus would have to stop the practice of community rating. Hence , it's difficult for a community rating type of equilibrium to exist if individuals are not mandated to buy the insurance.

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