To Remain Financially Sound, Health Insurance Companies must Charge GMAT Reading Comprehension

Reading Passage Questions

To remain financially sound, health insurance companies must charge higher rates to insure people considered a higher risk. Lacking complete information about individuals, insurers are forced to set a standard rate, based on the average risk of the group, for a particular segment of the population. Consumers in poor health are willing to pay for the insurance, knowing that it will cover their higher-than-average health-care costs. In contrast, healthy consumers often decide to forgo the insurance, reasoning that it is less expensive to pay out-of-pocket for their lower-than-average health-care costs. The result, called “adverse selection,” is that the riskier members of a group will comprise the group of insurance applicants, potentially leading to a market failure in which insurance companies cannot afford to offer insurance at any price. Among people over age sixty-five, even the wealthy can have difficulty obtaining fairly priced medical insurance, simply because of their age.

However, those who blame so-called insurance company greed and discrimination against the elderly are ignoring the reality of adverse selection. Younger people generally obtain health insurance through their employers’ group insurance plan. Employer’s plans obligate all employees to enroll in the plan and effectively pre-screen for general health, as a minimum health level is required to hold a job. Insurance companies can therefore charge a lower premium, based on the lower average risk of the employee pool, without worrying that healthy employees will opt out of the plan. Consumers over sixty-five, typically not employed and thus seeking insurance individually, are necessarily more vulnerable to market failure stemming from adverse selection.

“To remain financially sound, health insurance companies must charge GMAT Reading Comprehension” is a GMAT Reading Comprehension which will help students for the preparation of the exam GMAT.

This text consists of 5 questions. The GMAT Reading Comprehension questions are designed for the purpose of testing candidates’ abilities in understanding, analyzing, and applying information or concepts. Candidates can actively prepare with the help of  GMAT Reading Comprehension Practice Questions.

Solutions and Explanations

1. It can be inferred from the passage that unemployed people

1. always pay higher health insurance premiums than employed people
2. cannot purchase health insurance
3. are not as healthy, on average, as employed people
4. opt out of the workforce for health reasons
5. must work in order to acquire health insurance

2. The author refers to “greed and discrimination” in the second paragraph of the passage in order to

1. provide an example of the way some consumers are treated unfairly
2. explain how medical insurance pricing decisions are justified
3. accuse employers of failing to solve the problem of adverse selection
4. identify causes of adverse selection
5. identify an alternate explanation that the author disputes

3. The primary purpose of the passage is to

1. advocate for change on behalf of consumers
2. explain why a market failure occurs
3. introduce recently discovered information
4. challenge a widely accepted explanation
5. argue that a situation is morally wrong

4. Which of the following best describes the function of the first paragraph within the passage as a whole?

1. It states an opinion that is supported elsewhere in the passage.
2. It outlines a process that is critiqued elsewhere in the passage.
3. It advances an argument that is disputed elsewhere in the passage.
4. It introduces conflicting arguments that are reconciled elsewhere in the passage.
5. It defines a problem that is cited elsewhere in the passage.

5. The passage states which of the following about the cost of health-care?

1. It is generally higher for people with poor health.
2. It is generally higher for full-time workers.
3. It is not fairly priced in the current market.
4. It has been rising in recent years.
5. It will soon be too high for younger workers to afford.

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