Question
An important distinction in health insurance is between the list price (P L ) and out-of-pocket price (P P ) of a medical good or
An important distinction in health insurance is between the list price (PL) and out-of-pocket price (PP) of a medical good or service. The list price is the official price that the provider charges the insurance company, while the out-of-pocket price is the price that the insurance customer faces. Sometimes, the out-of-pocket price depends on the list price.
Natalia has demand for medical services as follows: Q = 100 2PP, where PP is the out-of-pocket price she actually faces. She is considering four different insurance options: No insurance, full insurance, a coinsurance plan, and a copayment plan. The medical services each have a list price of PL = $30. (19 points total)
- Graph Natalia's demand curve under the assumption of no insurance. (4 points)
- Graph Natalia's demand curve under the assumption of full insurance. Calculate the quantity demanded and the social loss. (4 points)
- Graph Natalia's demand curve for a 50% coinsurance plan. Calculate the quantity demanded and the social loss. (4 points)
- Graph Natalia's demand curve for a $20 copayment plan. Calculate the quantity demanded and the social loss. (4 points)
- Would the coinsurance plan or the copayment plan be better at mitigating moral hazard? Why? (3 points)
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