22.6.Consider two households. They have the same incomes and face the same prices. Household H tends to be healthy and household U tends to be unhealthy. Suppose that two insur- ance plans are available:

A$2,500 deductible and a 5 percent coinsurance rate after meeting the deductible.

B$250 deductible and a 20 percent coinsurance rate after meeting the deductible.

(a)Using a budget constraint and indifference curves on the diagram below, model the two insurance plans.

(b)Assume that a voluntary HSA is made available upon the purchase of a high-deductible policy. Assume that if the money is not used it is lost. Which of the households is likely to participate? Use the diagram below to ex- plain why.

(c)Consider part (b) above, but assume now that the unused portion in the HSA can be distributed to the individual at the end of a designated period or at retire- ment. Would your answer to part (b) change? If so, how? If not, why not?