BASICS OF HEALTH INSURANCE


INSURANCE PROTECTS AGAINST RISK OF ILLNESS


HEALTH         MEDICAL EXP.        PROBABILITY

GOOD           0                        50%
POOR           $1,000                   50%


EXPECTED ANNUAL MEDICAL EXP. = $500

1.   SELF INSURE

     PUT AWAY $500 AT THE START OF EACH YEAR
     IN YEAR OF POOR HEALTH, WITHDRAW $1,000

     PROBLEM:  RUN OF BAD LUCK (POOR HEALTH)
     WILL BANKRUPT YOU

2.   GROUP INSURANCE THROUGH PRIVATE FIRM

     PREMIUM OF $500 FOR SUBSCRIBERS
     COMPANY PAYS $1,000 TO THOSE ILL

     IF # OF INSURED IS VERY LARGE, FIRM CAN BE
     NEARLY CERTAIN THAT EXACTLY HALF WILL BE
     WELL, HALF WILL BE ILL; SO FIRM BREAKS
     EVEN