The setting of each of these questions is the nation of Freedonia, which includes Asclepius Hospital (one of many local hospitals), and the BBNW Insurance Companywhich sends most of its patients to Asclepius for care. Please focus your answers on material covered through Module 5. Use economic terms as appropriate. Do not include arguments that are extraneous to course content.

1.Doctors at Asclepius have invented a novel cure for the extremely rare, very serious, acute, and completely unforeseeable condition of Economitis. They would like to sell it at a very high price. Explain to BBNW why they should include coverage of Economitis in their insurance packages.

2.Freedonia has passed a law that permits, but does not require, insurers to include maternity benefits in their insurance packages. What are the likely effects of this law on the insurance market? What are the implications for Asclepius?

3.The government of Freedonia has decided to implement a system of risk adjustment based on diagnosis codes in its health insurance system. How is the introduction of this process likely to affect the practices of BBNW and of Asclepius and the well-being of people in Freedonia?

4.Health insurance is becoming very expensive in Freedonia, and BBNW wants to raise coinsurance and deductibles to combat this. How are these changes likely to affect Asclepius? What evidence can you present that supports your argument?

5. Freedonia contains some community hospitals and an academic medical center, staffed by the most experienced physicians. All the hospitals are operating at near capacity. The table below shows 30-day mortality outcomes (the fractions of patients who die) for otherwise identical patients seen at the two types of hospitals.

High risk patient for academic center is 30%

High risk patient for community hospital is 32%

Low risk patient for academic center is 5%

Low risk patient for community hospital is 6%

Fredonia is trying to decide where to send high-risk and low-risk patients. It is also considering funding a training program that will improve outcomes for high risk patients but can be conducted at only one of the hospitals. Where should it deploy its resources? Be sure to use economic terms and reasoning to make your argument.