Reading Comprehension

Can someone help me understand the OA of two questions after following Passage?

To remain financially sound, health insurance companies must charge higher rates to insure people considered a higher risk. Lacking complete information about individuals, insurers are forced to set a standard rate, based on the average risk of the group, for a particular segment of the population. Consumers in poor health are willing to pay for the insurance, knowing that it will cover their higher-than-average health-care costs. In contrast, healthy consumers often decide to forgo the insurance, reasoning that it is less expensive to pay out-of-pocket for their lower-than-average health-care costs. The result, called “adverse selection,” is that the riskier members of a group will comprise the group of insurance applicants, potentially leading to a market failure in which insurance companies cannot afford to offer insurance at any price.
Among people over age sixty-five, even the wealthy can have difficulty obtaining fairly priced medical insurance, simply because of their age. However, those who blame so-called insurance company greed and discrimination against the elderly are ignoring the reality of adverse selection. Younger people generally obtain health insurance through their employers' group insurance plan. Employer’s plans obligate all employees to enroll in the plan and effectively pre-screen for general health, as a minimum health level is required to hold a job. Insurance companies can therefore charge a lower premium, based on the lower average risk of the employee pool, without worrying that healthy employees will opt out of the plan. Consumers over sixty-five, typically not employed and thus seeking insurance individually, are necessarily more vulnerable to market failure stemming from adverse selection.

1. It can be inferred from the passage that unemployed people
A. always pay higher health insurance premiums than employed people
B. cannot purchase health insurance
C. are not as healthy, on average, as employed people
D. opt out of the workforce for health reasons
E. must work in order to acquire health insurance

2. The author refers to “greed and discrimination” in the second paragraph of the passage in order to
A. provide an example of the way some consumers are treated unfairly
B. explain how medical insurance pricing decisions are justified
C. accuse employers of failing to solve the problem of adverse selection
D. identify causes of adverse selection
E. identify an alternate explanation that the author disputes

[spoiler]OA 1. C 2. E
1. Not clear on how the inference has been drawn that unemployed people are not healthy
2. "identify an alternate explanation that the author disputes" is confusing[/spoiler]

1. It is mentioned in the passage that "Employer’s plans obligate all employees to enroll in the plan and effectively pre-screen for general health, as a minimum health level is required to hold a job." So we can infer safely that on an average unemployed people are not as healthy as employed people.

The answer can also be reached by POE.

A. always pays higher - need not be true.For example- Some people with full health screening might be offered lower rate than employed people.
B. cannot be inferred
c. maybe
d. cannot be inferred from passage
e. passage does not state or imply that only working force can get health insurace, so this is incorrect.

So it leaves us with option C.

2. I got E by POE.

wanted a more specific reply... instructors please help

I am not expert, but I will give my opinion:

1. Its an inference question. So, avoid answer choices that are extreme.
A, B & E are extreme (always, cannot, must). Between C & D, C is an appropriate inference because according to the passage the people who are not employed are the ones who are old & so unhealthy.

2. The author provides alternative explanation "However, those who blame so-called insurance company greed and discrimination against the elderly are ignoring the reality of adverse selection." & disputes it.

I got the answer & explanation for the first question.

Can somebody explain the answer for the second question. I picked (B).

Alternate explanation? I am not getting this.

I am not convinced with the OA of the 1st question.

I think we have to infer a little too much, something not required in GMAT, to conclude this answer.

The post is pretty old, but I am not convinced with either of the OAs. Can anyone please explain me how to come-up with the proper answers in both the questions?

Reading Comp passage and questions are hard to write you know. Let me preface my remarks by saying that I am always willing to indicate when a question used in Veritas (where I work) material needs to be edited a bit so I feel like I am being fair when I say the same thing about other material.

This is not an official passage it is from Manhattan. Something about the passage is just a little different from the Official passages but this not a bad passage at all and like I said Reading Comp is hard to do...

Question 1 OA is C. I agree that this is a bit too much for an inference, but through process of elimination the other choices fall by the wayside.

A) says "always" without proving that it is always true.

B) is actually false according to the passage

C) this is intended to be the correct answer based on the statement that "Employer's plans obligate all employees to enroll in the plan and effectively pre-screen for general health, as a minimum health level is required to hold a job."

D) there is an implied "all" here as in "[they all] opt out of the workforce for health reasons. We do not know this from the passage.

E) Again this is not necessarily true as unemployed people can just pay more for health insurance.


So for this question C is a reasonable answer and is what is intended by the passage, whether or not it is true in the real world is not our concern.

Question 2) If you reread around "greed and discrimination" you see that this is one possible reason for high premiums and this is a reason that they author rejects by pointing to adverse selection so that takes us to E, which is the OA.

A,B, and C seem to take the "greed" of the companies as the opinion of the author when he rejects it and D mistakenly mentions insurance company greed as a cause of adverse selection.

By the way, back in the real world, insurance company profits up in the U.S. last year the companies have full reserves and are making big money and they want a big increase (more than 10%) in premiums for next year - could they be preparing for "adverse selection?" surely no "greed" involved...

Thanks David!!

Thanks David for the insightful reply.

David@VeritasPrep wrote: Question 2) If you reread around "greed and discrimination" you see that this is one possible reason for high premiums and this is a reason that they author rejects by pointing to adverse selection so that takes us to E, which is the OA.

A,B, and C seem to take the "greed" of the companies as the opinion of the author when he rejects it and D mistakenly mentions insurance company greed as a cause of adverse selection.

By the way, back in the real world, insurance company profits up in the U.S. last year the companies have full reserves and are making big money and they want a big increase (more than 10%) in premiums for next year - could they be preparing for "adverse selection?" surely no "greed" involved...

Hi David,
I chose B for Q2.
2. The author refers to "greed and discrimination" in the second paragraph of the passage in order to
B. explain how medical insurance pricing decisions are justified
E. identify an alternate explanation that the author disputes

Author tried to explain that it is not greed of the companies that they are charging higher premiums, but because of the adverse selection they have to do this. So their prices are justified.

Isn't B saying same thing. I could not make out what E is saying- seems the sentence is not making sense (Author mentions....in order to identify an alternate explanation that the author disputes).

Vikram -

You are not looking at this quite specifically enough. The question says "The author refers to "greed and discrimination" in the second paragraph of the passage in order to..."

So you see we have to ask, "why mention "greed and discrimination?" Specifically those words, why use those words?

You said,

Author tried to explain that it is not greed of the companies that they are charging higher premiums, but because of the adverse selection they have to do this. So their prices are justified.

Isn't B saying same thing

But choice B says, "B. explain how medical insurance pricing decisions are justified" So why would you mention Greed and Discrimination if they are not the cause? Read B critically. It says that these words Greed and Discrimination are used to explain how insurance pricing decisions are justified - that is only true if the author thinks that such decisions are BASED ON greed and discrimination. That is what would make B correct.

The author is actually using those words "greed and discrimination" to point out a cause that he/she rejects as the cause of insurance pricing. So that is exactly the opposite of B.

As to E just take it literally, "greed and discrimination" are indeed an "alternative explanation" for the way that pricing decisions are made and as you have stated, the author does reject these things as explanation and goes with "adverse selection" as the cause. So E is right there!

Thanks, i messed up with the meaning of the question.

That is why we do this! So that we can learn. When my students miss questions in the early classes I am perhaps even too enthusiastic about it. If they were getting them all correct then what am I teaching?

Every time you understand a question and decide not to make a similar mistake your GMAT score goes up!