A consumer’s demand for a medical service is 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. a. Assume this service has a list price of PL =$70. Calculate Q under each insurance plan.b. Calculate the amount of social loss under each insurance plan.c. 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.d. Derive a general expression for social loss as a function of y and PL, where y is the coinsurance rate.
A consumer’s demand for a medical service is 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.
a. Assume this service has a list price of PL =$70. Calculate Q under each insurance plan.
b. Calculate the amount of social loss under each insurance plan.
c. 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.
d. Derive a general expression for social loss as a function of y and PL, where y is the coinsurance rate.
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