In a Small Island Population, Half the People Are Healthy

Multiple Choice

In a small island population, half the people are healthy and half are sick. The annual expected medical claims of the healthy and sick are $200 and $4,000, respectively. Assume that the health insurance company does not know whether people are healthy or sick before they buy insurance. If the health insurance company charges an annual premium of $2,100 (the average expected claim) , only the _____ will buy insurance, driving future premiums _____.

A) sick; up
B) healthy; down
C) sick; down
D) healthy; up