An important distinction in health insurance is between the list price (PL) and out-of-pocket price (PP) of a medical good or service. The list priceis the official price that the provider charges the insurance company, while the outof- pocket price is the price that the insurance customer faces. Sometimes, the out-ofpocket price depends on the list price.a. Draw a set of axes with list price PL on the y-axis and quantity Q on the x-axis (you will want to make your graph nice and big, because you will be adding several demand curves).b. Suppose a consumer’s demand for a particular medical procedure is Q=100−PP. Draw her demand curve in PL–Q space under the assumption of no insurance and label it D1. You will have to think about the relationship between PL and PP to draw it correctly.c. Now assume the same consumer is fully insured. Think about how this affects the relationship between PL and PP and draw a full-insurance demand curve in PL–Q space. Label this curve D2.d. Now assume the consumer is part of a partial insurance plan with a coinsurance provision. Her insurance pays 50% of allmedical expenses. Consider again the relationship between PL and PP and plot a coinsurance-plan demand curve in PL–Q space. Label this curve D3.e. Finally, assume the consumer is part of a partial insurance plan with a copayment provision. Her insurance pays all expenses above and beyond her copayment of $25 for each unit of Q. Consider again the relationship between PL and PP and plot a copayment-plan demand curve in PL–Q space. Label this curve D4.
An important distinction in health insurance is between the list
is the official price that the provider charges the insurance company, while the outof- pocket price is the price that the insurance customer faces. Sometimes, the out-ofpocket price depends on the list price.
a. Draw a set of axes with list price PL on the y-axis and quantity Q on the x-axis (you will want to make your graph nice and big, because you will be adding several
b. Suppose a consumer’s demand for a particular medical procedure is Q=100−PP. Draw her demand curve in PL–Q space under the assumption of no insurance and label it D1. You will have to think about the relationship between PL and PP to draw it correctly.
c. Now assume the same consumer is fully insured. Think about how this affects the relationship between PL and PP and draw a full-insurance demand curve in PL–Q space. Label this curve D2.
d. Now assume the consumer is part of a partial insurance plan with a coinsurance provision. Her insurance pays 50% of allmedical expenses. Consider again the relationship between PL and PP and plot a coinsurance-plan demand curve in PL–Q space. Label this curve D3.
e. Finally, assume the consumer is part of a partial insurance plan with a copayment provision. Her insurance pays all expenses above and beyond her copayment of $25 for each unit of Q. Consider again the relationship between PL and PP and plot a copayment-plan demand curve in PL–Q space. Label this curve D4.
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