AutoSave . Q G F} V3 Homework 2 - Compatibility Mode ~ Saved to my Mac W Home Insert Draw Design Layout References Mailings Review View DocuSign Q Tell me CJComments Editing v AaBchDdEe AaBchDdEe AaBchD AaBchDdE Aa > 4 Q; Normal No spacing Hea Ing1 Hea mg 2 Title Styles Dictate Pane 1. Jack makes $80,000 a year, but there is a 30% chance he will get sick, in which case his medical bills will effectively lower his income to $40,000 He has a utility mction U:ln(I), where I:income (net of medical expenses) Assume Jack doesn't have health insurance, please calculate his: ( 1) expected income, (2) expected utility, (3) certainty equivalent, and (4) risk premium. What's more, please make a graph with income on the x-axis and utility on the y-axis, and (1) depict his utility curve in the graph, (2) label the four values you calculated from above. 2' Continuing for question 2, now Jack is considering buying health insurance to protect against this medical risk, and is deciding between the following three plans (or simply remaining uninsured): Plan A: 0% coinsurance rate, $8,000 annual premium Plan B: 20% coinsurance rate, $5,000 annual premium Plan C: 80% coinsurance rate, $650 annual premium (1) Compute his expected income and expected utility under each of these three plans. (2) Which plan maximizes his expected income? How about compared to remaining uninsured? (3) Which plan maximizes his expected utility? How about compared to remaining uninsured? (4) If the option maximizing his expected income and the option maximizing his expected utility are different, what is the intuition behind this? (5) For each of these three plans, please also compute the minimum premium that the insurance company should charge if we assume the loading fee is 0. Page1of3 624words [13 English(UnitedStates) :3 AccessibiIityzooodtogo EIFocus I E6 . + 130% AutoSave ... w- Homework 2 - Compatibility Mode Home Insert Draw Design Layout References Mailings Review View Docusign ? Tell me Comments Editing Share Times New... 12 AA Aa Ap AaBbCcDdEe AaBbCcDdEe AaBbCcD AaBbCcDdE AaBb Paste B I Uv ab Av LV Av E Normal No Spacing Heading 1 Heading 2 Title Styles Dictate Sensitivity Editor Pane B. In a graph, explain why more price elasticity makes health insurance less desirable. 4. a) Suppose an insurance company charges Joe a monthly premium of $150 for a plan with a 60% coinsurance rate. The company has computed that Joe will use an average of 5 units of medical care per month at $60 each. What is this policy's loading fee? [Hint] You may start with the formula Premium = (1 + L)(1 - C)Pmm* b) Suppose a law is passed allowing individuals to pay their insurance premiums with pre-tax income. Now following question 4a, Joe has a 20% marginal tax rate. How has the effective price of his policy changed? [Hint] Remind yourself what's the "effective price of his insurance policy". c) Discuss two distinct reasons why the tax subsidy for employer-provided health insurance likely increases premiums. [Hint] You may start with the formula: Premium with tax subsidy = (1 - t)(1 + L)(1 - C)Pmm* 5. Give an argument for why preventive services (e.g. flu shots, colonoscopies) should NOT be covered by health insurance plans. Then give an argument why they SHOULD be covered. 6. Explain how death spiral happens? What's one possible solution to prevent it? 7. Explain why tax subsidies could motivate employers to offer insurance as a benefit? Without tax subsidy, are there any other reasons for which employers are stilling willing to offer insurance as a benefit? List and explain. Page 2 of 3 624 words English (United States) iT Accessibility: Good to go Focus E + 130%AutoSave ... w- Homework 2 - Compatibility Mode Home Insert Draw Design Layout References Mailings Review View Docusign ? Tell me Comments Editing Share Times New... 12 AA Aa Ap AL AaBbCcDdEe AaBbCcDdEe AaBbCcD AaBbCcDdE AaBb Paste B I Uv ab Av LAV Normal No Spacing Heading 1 Heading 2 Title Styles Dictate Sensitivity Editor Pane 8. Explain the incentive problem associated with fee-for-service insurance reimbursement. How does switching to capitation reimbursement solve this problem? Can you make an argument that capitation creates a different incentive problem? 9. Discuss the differences between a traditional staff model HMO managed care plan and a PPO managed care plan. Also explain the differences between a POS managed care plan and an IPA managed care plan. 10. In lecture we discussed eight ways how managed care organization "manages care" e.g. gatekeeper, copayments.. .etc.). Discuss three of these ways. 11. Explain two possible reasons why managed care would harm health outcomes. 12. Describe the Medicare Prospective Payment System. What incentive problem was it designed to correct? What other incentive problem did it create? 13. Explain how public insurances such as Medicaid and SCHIP "crowd-out" private insurance. Why is it an issue? Page 2 of 3 624 words English (United States) iT Accessibility: Good to go Focus E + 130%