insurance decision problem will give best answer?
1. Suppose a new medical test shows that those who FAIL this test are far more likely to have an expensive illness over the course of the next year than those who PASS the test. An insurance company discovers that it would cost only 1/2 as much to insure those who have
passed the test as to insure those who have failed it. This company plans
to sell health insurance to persons who have taken and passed the test at
half the price that it charges to others. Can you make a case for why a
government might choose to make it illegal for insurance companies to do
this?
2. Suppose that insurance companies are allowed to offer insurance at one rate
to those who have passed the test and at twice this rate to those who have
failed it. If you had the choice of either (a) taking the test and then buying
insurance at the rate that applies to you given the result of the test or (b)
never taking the test and being insured at the rates that applied before the
test was invented, which option would you choose?
for 1. i was thinking this is like correlation doesnt equal causation, that's why the government would make it illegal.
for 2. i really don't know this answer, i think it depends if you know what ur health is, assuming u know your health more than other people, you would take the test only if you know you will pass it?? but what would you do if you know NOTHING about your health or if you have NO control what the test shows???
please help and be detailed, will give BEST answer.