The regular payment a policyholder makes to an insurance company in exchange for coverage is called a premium.
Missing Word
premium
A premium is the price of an insurance policy, paid regularly by the policyholder; premiums from many people fund the claims of the few who suffer losses.
Category: How Insurance Works
Question 2
A deductible is the amount a policyholder must pay out of pocket on a covered loss before the insurance company begins to pay.
Missing Word
deductible
A deductible makes the policyholder bear the first part of each loss, which encourages care and reduces moral hazard.
Category: Moral Hazard
Question 3
The 2010 federal health care law that set up health insurance exchanges, where individuals can compare and buy coverage, and barred insurers from refusing people with preexisting conditions is known by the three-letter acronym ACA.
Missing Word
ACA
The ACA, the Patient Protection and Affordable Care Act signed in 2010, created exchanges for buying individual coverage and ended denials for preexisting conditions, with the goal of reducing the number of people without coverage.
Category: Health Insurance
Question 4
In economics, a used car with hidden defects that the seller knows about but the buyer cannot detect is often called a lemon.
Missing Word
lemon
A lemon is a defective product, especially a used car, whose problems are hidden from the buyer, and it is the classic example of asymmetric information.
Category: Imperfect Information
Question 5
A health care provider that receives a fixed payment for each enrolled person, regardless of how many services that person uses, is known by the acronym HMO.
Missing Word
HMO
An HMO, a health maintenance organization, is paid per enrolled person rather than per service, which gives it an incentive to avoid unnecessary care.
Category: Moral Hazard
Question 6
Medicare is the federal health insurance program for people aged 65 and older.
Missing Word
Medicare
Medicare covers older Americans regardless of income and, like Social Security, is a form of social insurance.
Category: Health Insurance
Question 7
Medicaid is the joint federal and state program that provides health insurance to certain low-income people, including elderly people and people with disabilities.
Missing Word
Medicaid
Medicaid covers groups such as low-income children, elderly people and people with disabilities, with each state running its own program.
Category: Health Insurance
Question 8
A formal request a policyholder makes asking the insurance company to pay for a covered loss is called a claim.
Missing Word
claim
A claim is the policyholder's request for payment after a covered loss; the insurer pays claims out of the pooled payments of all its policyholders.
Category: How Insurance Works
Question 9
Buyers who cannot judge quality for themselves often rely on a seller's reputation, the public's knowledge of how the seller has treated customers in the past.
Missing Word
reputation
A reputation for quality builds over many sales, so firms that expect repeat business gain by protecting it, which reassures buyers who cannot judge quality themselves.
Category: Reducing Information Problems
Question 10
The federal agency that regulates advertising and requires factual statements in ads to be true is known by the acronym FTC.
Missing Word
FTC
The FTC, the Federal Trade Commission, permits some exaggeration in ads but acts against false factual statements, which protects buyers with imperfect information.
Category: Reducing Information Problems
Question 11
Bank deposits are protected up to a legal limit by the government agency known by the acronym FDIC.
Missing Word
FDIC
The FDIC, the Federal Deposit Insurance Corporation, insures bank deposits up to a limit so depositors do not lose their money if a bank fails.
Category: How Insurance Works
Question 12
People with no health coverage of any kind are described as uninsured, and they often turn to costly hospital emergency rooms for care.
Missing Word
uninsured
Uninsured people lack any health insurance; reducing their number was a central goal of the Affordable Care Act.
Category: Health Insurance
Question 13
Deliberately causing or faking a loss in order to collect an insurance payment is a crime known as fraud.
Missing Word
fraud
Fraud is deliberate deception for gain and is the most extreme form of moral hazard, so insurers investigate suspicious claims.
Category: Moral Hazard
Question 14
Insurers hold much of their reserves in liquid assets, meaning assets that can be turned into cash quickly, so they can pay for many losses at once after a disaster.
Missing Word
liquid
A liquid asset can be sold quickly at close to its full value; insurers need such assets because a major disaster can bring a flood of claims at the same time.
Category: How Insurance Works
Question 15
Unlike many industries, insurance in the U.S. is regulated mainly by the individual states, which coordinate through a national association of insurance commissioners.
Missing Word
states
Each state has its own insurance regulators who oversee premiums and coverage, and they coordinate through the National Association of Insurance Commissioners.
Category: Insurance Regulation