EBK HEALTH ECONOMICS AND POLICY
7th Edition
ISBN: 9781337668279
Author: Henderson
Publisher: YUZU
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Chapter 13, Problem 4QAP
To determine
The viewpoint on the ideology that a free market mechanism is more
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Suppose the government sets the maximum price for a normal doctor's visit at $20, but the current market price is $40. As a result of this government action, doctors will see:
more patients.
the same number of patients.
fewer patients.
A consumer’s demand for a medical service is as follows:
Q = 100 - PP
where PP is the out-of-pocket price she actually faces. She is considering four different insurance options: uninsurance, full insurance, a 50% coinsurance
plan, and a copayment plan with a $25 copay.
Assume this service has a list price of PL = $70. Calculate Q under each insurance plan.
Calculate the amount of social loss under each insurance plan.
Derive a general expression for social loss as a function of x and PL, where x is the copay amount under a copayment plan. For simplicity’s sake, assume x < PL.
Derive a general expression for social loss as a function of y and PL, where y is the coinsurance rate.
Moral hazard creates tradeoffs that complicate insurance design and policy choices. Imagine a
linear demand curve for outpatient clinician visits, and assume at $100 per visit there would be
50,000 annual visits to a particular urban clinic. A politician would like to be popular, and
proposes making clinic visits free (zero price). You know, as the city's staff health economist,
that if this were to happen, the number of visits would rise to 75,000. Your job is to testify
before the city council, and answer at least two questions: how much social welfare loss from
moral hazard would occur; and how much tax money must be raised to finance clinic services if
visits were made completely free?
a. $2,500,000; $15,000,000
b. $5,000,000; $30,000,000
c. $1,250,000; $7,500,000
d. $3,750,000; $22,500,000
Chapter 13 Solutions
EBK HEALTH ECONOMICS AND POLICY
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Similar questions
- Advocates of a market orientation argue that exclusive reliance on the visible hand of government will never bring spending address control. The missing component has been the invisible hand of the market pricing mechanisms. Patient spending their own money have an incentive to control spending. Comment.arrow_forwardIn some countries, such as Canada and UK, direct-to-consumer (DTC) advertising for pharmaceutical products is illegal or tightly controlled. Which of the following is NOT a reason why DTC is tightly controlled? DTC have the potential to drive up spending on drugs and exacerbate moral hazard. DTC makes patients aware of new remedies. DTC can put a strain on doctor-patient relationship when patients demand some drugs that are not necessary or not the best options. Asymmetric information: consumers are not in a good position to determine if a drug is what they need.arrow_forwardMake the business case why healthcare providers should advocate for expansion of insurance coverage for the poorarrow_forward
- The presence of what two forces in a health insurance market may cause the market to completely unravel?arrow_forwardWhat would happen if, in order to provide lower cost healthcare, the government decided to set a price ceiling (Pmax) in the health insurance market?arrow_forwardThe Patient Protection and Affordable Care Act (PPACA) attempts to provide health-insurance coverage to low-income people through the following methods, except establishing a new government insurance system specifically for the poor. requiring large employers to cover all their employees, including the poor. expanding the Medicaid system to cover those whose incomes are less than 133 percent of the poverty level. providing subsidies to purchase health insurance to those who must buy insurance coverage on their own. Those without any health insurance in the U.S. tend to be the following groups, except Group of answer choices those who are in excellent health and those with the poorest health. workers in small firms. minimum-wage workers. those receiving Social Security payments.arrow_forward
- There is ongoing debate among U.S. policymakers whether the role the government in the healthcare system should be expanded or reduced. Which of the following are the arguments put forward by those who would like to see an expanded government role? Check all that apply. The government can offer people a public option in the healthcare. Private insurance companies put profit ahead of people. Private insurers and providers should compete for consumers. The government is to offer people a single payer system financed out of tax revenue.arrow_forwardBased on the Dartmouth Atlas which tracks Medicare spending across the United States Regardless of where patients live, they receive the same care for similar diagnosis Patients with the same diagnosis receive different care depending on where they live Dartmouth Atlas is not about medical care None of the abovearrow_forwardSuppose you have an insurance plan in which you pay the market price for medical care until you meet a deductible of $1,000, after which you have a coinsurance rate of .20. Answer parts a and b assuming your inverse demand curve for medical care is P = 400 – 10Q and the market price for medical care is $200 per unit.a) Graph the price line and your demand curve. On the graph, label the values of the x and y intercepts of the demand curve, the quantity where you meet the deductible, the horizontal sections of the price line, and the point(s) where the demand curve intersects the price line.b) Find the number of units of medical care that you will demand. Show all calculations that youperformed in your analysis.arrow_forward
- Inability of one to determine marginal value of health care implies that the traditional approach to demand theory does not work very well for health-care services. True or false?arrow_forward1. An individual has a health insurance plan with a deductible of $1200 and a coinsurance rate of 50%. Their demand curve is Q=20-(P/10), and the equilibrium market price of medical care is $100 per unit. What quantity of medical care would the individual choose to consume? 2. Suppose that consumers are all risk neutral and so they do not purchase health insurance. The equilibrium price of a doctor visit is $30, the supply of doctor visits is perfectly elastic, and the aggregate demand for doctor visits is given by Q=200-5*P. Calculate the effect that universal perfect health insurance (that is, coinsurance rate=0) would have on social welfare, measured as the sum of consumer surplus plus producer surplus. 3. Consider a version of the Akerlof model in which neither buyers nor sellers observe car quality (though somehow – please suspend your disbelief – both buyers and sellers enjoy higher utility from higher quality cars). For this question, please assume that both buyers…arrow_forwardThe government wants to regulate health insurance companies requiring them to provide insurance coverage not just for future health problems, but also for pre- existing conditions. For such a policy to succeed, it is important to make purchase of health insurance compulsory for individuals. Is this true or false? Explain your answer.arrow_forward
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