Consider how health insurance affects the quantity of health care services performed. Suppose that the typical medical procedure has a cost of $160, yet a person with health insurance pays only $40 out of pocket. Her insurance company pays the remaining $120. (The insurance company recoups the $120 through premiums, but the premium a person pays does not depend on how many procedures that person chooses to undergo.)

Consider the following demand curve in the market for medical care.