Health Insurance Class at UCLA

Mary Johnson from the city, a 49-year-old woman with an annual income of $60k is trying to decide whether to purchase health insurance on the marketplace. The premium for people in her age group is $3,500. She has a 2 Percent (2%) chance of having a condition that will cost her $55k.

Her utility function is: logY.

1. Will Mary Johnson purchase the insurance policy - why or why not so?

2. She is potentially eligible for a subsidy. How much would the U.S government must subsidize the premium for Mary Johnson to purchase the health insurance?

3. Suppose that Mary would have to pay a tax of $1k if she remained uninsured. Would she pay the tax or purchase the health insurance?