Class 6: Risk Premium and WTP

Objectives

• Calculate risk premium and willingness-to-pay for health insurance
• Explain and draw graphically how the risk premium varies with the curvature of the utility function, probability of illness, and amount of potential loss
• Discuss viability of high-risk pools

Activities

• Discussion of Humana and importance of risk pools
• In-class problem on the demand for health insurance. The worksheet is here.