#17 - Since the introduction of the Impanian National Health

[Administrator]

Complete Question Explanation

Resolve the Paradox. The correct answer choice is (D)

The paradox in this stimulus involves nationalized health care in Impania. The national scheme was intended to drive down the cost of private health insurance, since the insurers would be relieved of the burden of paying for the bulk of health care costs. The results, however, have been the opposite: private health insurance has instead dramatically increased. The correct answer choice will provide resolution to this paradox, providing an explanation of why the scheme, which was expected to reduce insurance costs, instead led to increased costs.

Answer choice (A): This choice expands the paradox—if the private insurers were able to reduce overhead, that would provide even more reason to question the increasing prices that the companies charge.

Answer choice (B): This choice speaks to what was intended to benefit private insurers: the idea was that they would no longer have to bear so much of the national health costs. Since this choice fails to provide any resolution to the counterintuitive outcome, this answer choice cannot be correct.

Answer choice (C): The fact that the number of privately insured Impanians has not increased does not explain why the private insurers are charging more, in spite of the fact that the national scheme was intended to allow procedures to be performed at a modest cost.

Answer choice (D): This is the correct answer choice. If the new scheme has dissuaded people from buying private health insurance, as this answer choice provides, that would explain why the insurance companies, suffering from lost business, would be forced to charge higher prices for their policies.

Answer choice (E): Without knowing the total expenditures of the country, or those of health care, this choice provides little information. Since this answer fails to resolve the paradox from the stimulus, it is incorrect.

[lawschoolforme]

Hi,

I don't understand why D is correct rather than C.

What I'm looking for the in the answer choices is something that will explain the rise in cost of private health insurance despite the fact that private health insurance will no longer have to cover the bulk of healthcare costs. So:

I picked C because if "the number of Impanians with private health insurance has not increased", doesn't this mean that the number of Impanians with private health insurance could either stay the same, or decrease? In which case, couldn't this explain the increase in the price of private insurance?

Conversely, I didn't pick D because I don't see how Impanians buying private medical insurance only at times when they expect that they will need extra care would increase costs unless we assume that Impanians don't expect that they will need extra care (and therefore would not buy extra care?).

Blegh!

-lawschoolforme

[Dave Killoran]

Hi Lawschool,

Let's start with answer choice (D) first. In (D), put yourself in the shoes of someone selling insurance. Under the scenario described in this answer choice, when are people buying insurance? Only when they know they will need it. So, every single time someone walks in to buy insurance, you know they are about to undergo "unusual and sophisticated medical procedures." that's going to be expensive, so would you offer that cheaply? No, because you know you are about to pay out big-time as an insurer, for every single case.

And, keep in mind that insurance costs in general operate in such a way that most everyone can pay a relatively low premium because risk is spread among the masses. In the real world, in health care plans they know that only a fraction of the people will need serious medical care each year. Everyone then pays a low premium, which collectively covers those few cases. But, if the situation changed so that everyone was going to require serious medical care, the premiums would skyrocket, which is what occurs here.

In (C), I think the angle you are taking is that with fewer people then fixed costs are spread over fewer premiums, meaning the premiums would have to rise? There are problems with that interpretation, though. First is that (D) says, "the number of Impanians with private health insurance has not increased," which means it could stay the same. and if it did stay the same, then there would be no reason for a cost increase. Second, the stimulus states that costs have "increased dramatically," and even if numbers had decreased it doesn't support the idea of a dramatic increase.

Please let me know if that helps. Thanks!

[lawschoolforme]

Hi,

Hm - okay. I see now why C wouldn't be quite as great of an answer. Thanks so much!

At the same time though, I'm still not quite sold on D.

If I were to place myself in the shoes of someone selling insurance, how do I actually know that all the people who walk in my door are the ones who need the crazy expensive stuff?

I guess what I mean is: why do we assume that a healthy Impanian is unlikely to insure himself/herself for "unusual and sophisticated medical procedures"? And why don't we assume that Impanians in general would expect to need such kinds of care? (After all, I could imagine a healthy young person wanting to insure himself up the wazoo in case he were to have an unfortunate encounter with a motorcycle, blender, or cancer in the near future. You never really know with these things - or rather, you don't "expect" these things to happen - but isn't that why you get insurance?) And if a large enough number of healthy people did insure themselves for the crazy expensive stuff, wouldn't that ultimately drive costs down as the risk is spread over a larger number of people? (Or is this actually an unlikely situation that I'm positing?)

Hm. I feel a little silly still not quite getting this, but I really appreciate your help. Thanks again so much!

-lawschoolforme

[Nikki Siclunov]

Hi lawschoolforme,

Let me jump in real quick and add to Dave's excellent analysis above. You ask:

why do we assume that a healthy Impanian is unlikely to insure himself/herself for "unusual and sophisticated medical procedures"? And why don't we assume that Impanians in general would expect to need such kinds of care? (

Well, we don't assume that. Answer choice (D) states as much: Impanians buy private insurance only when they expect that they will need unusual and sophisticated medical procedures:

Buy private insurance Expect to need unusual procedures

If that were true, then not all Impanians would be buying private insurance: by its very definition, an "unusual and sophisticated" medical procedure is not the sort of procedure that everyone expects to need. Answer choice (D) restricts the choice of buying private insurance to a particular situation, an expectation is by no means universal: a healthy person doesn't expect that they will need proton therapy, for instance. So, if the majority of Impanians don't expect that they will need sophisticated medical procedures and therefore don't bother with private insurance, the risk you mentioned will not be spread over a large number of people. Consequently, the cost of private insurance will go up.

Does that make sense? Let me know.

Thanks!

[lawschoolforme]

Hi Nikki,

Yeah - I think that sort of does help. LR is def. one of my weaker sections and it takes me a long time to understand problems that I've missed. I'm really grateful to the both of you for explaining this to me! Thank you so much!

-lawschoolforme

[reg4315]

Hi!

Thank you for the above explanation - given what we have to work with, approaching answer choice D from that perspective makes sense. However, it's questions like this that really drive me crazy with the test makers: Answer choice D is clearly saying that there is decreased demand for private insurance, and a decrease in demand decreases price. Initially I justified my mistake by faulting myself for "bringing in outside (economic) information," but then remembered a question regarding a decreased demand for fuel leading to increased fuel prices. While in that question, that information was provided in the stimulus, I still feel as though the leap you need to make to justify D is way more extravagant than positing that decreased demand would lead to decreased prices. The explanation for D works, but feels counterintuitive and forced to me - can anyone help explain the rationale a little further?

Thank you!

[nicholaspavic]

Hi reg,

I agree that this issue of insurance does seem counterintuitive. With the other stimulus that you mention, of course, that's distinguishable from here becase you are acccepting the answer choices as true in Resolve the Paradox questions. Going back to the current stimulus however, we are being asked to identify a fact that would tell us why those insurance prices are going up. So answer choices that only address mere quantities of insureds without telling us more, is not going to help us resolve this dilemna. The answer that is going to be the correct, is going to give a rationale for price increase and focus on a cause for it which is what precisely Answer (D) does. Because if only really sick people who need superspecialized care are those seeking insurance, then they will all require great sums of money in treatment. Therefore, if the only people who are a part of the pool of insureds are now those who are very expensive to cover, then the inference is that they will have to pay more money to be in that pool. After all, the insurance business is still a business that seeks to avoid losing money.

Thank you for the great question and I hope this helps!

[sbose]

Hi! I got this question correct, but I want to make sure I got it right for the right reasons!

I read the stimulus as a National Health scheme, which is a national/public healthcare plan, was introduced with hopes that the cost of private insurance would go down because the scheme would be bearing the brunt of health care costs. However, private insurance costs went up which is the paradox.

I assumed that this meant that people dropped out of their private health insurance plans, because they believed they could use the public health coverage for most of the time instead. Since this would mean that healthy people were no longer buying private health insurance, its cost increased.

Answer D seemed to fit this most since I read it as suggesting that most Impanians were no longer buying private health insurance like they did before.

Does this reasoning make sense? I'm a little concerned that I might have relied on my outside knowledge of healthcare to answer the question rather than what was in the stimulus!

Thanks so much for your help!

[Adam Tyson]

You should not have made any assumptions here, sbose, but just used what was presented. As it turns out, though, what you assumed to be true happened to be something that, if it WAS true, would resolve the paradox, so although it was a mistake to make an assumption it did lead you right to the correct answer. Avoid making assumptions of your own while attacking LSAT questions!