1. Draw the payoff diagrams for the following: - A high deductible health insurance plan with a maximum out of pocket expense of $12,000 a year - A traditional health insurance plan with no deductible but a co-pay of 10% on all healthcare expenses; no maximum out of pocket expenditure limit is specified - No health insurance coverage
2. What is the underlying? What type of option is a healthcare insurance (please specify long or short, call or put, or a combination)?
3. Assume that the net liquid asset in the household portfolio is $P where P > $12,000. How does your answer change where P< $12,000. Hint: Ability to declare personal bankruptcy is a put option.
4. What kind of behavior do you expect to see by healthcare providers and consumers based on the information above and for the different plan types?

For the payoff diagram, can we use Medical expenses for X and Profit/Loss ($) for Y.