Fun with cost-sharing. 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 price is the official price that the provider charges the insurance company, while the out-of-pocket price is the price that the insurance customer faces. Sometimes, the out-of-pocket price depends on the list price. 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 we will be adding several demand curves).Suppose a consumer’s demand for a particular medical procedure is as follows: 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.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.Now assume the consumer is part of a partial insurance plan with a coinsurance provision. Her insurance pays 50% of all medical expenses. Consider again the relationship between PL and PP and plot a coinsurance plan demand curve in PL - Q space. Label this curve D3.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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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Fun with cost-sharing. An important distinction in health insurance is between the list price (P_L) and out-of-pocket price (P_P) of a medical good or service. The list price is the official price that the provider charges the insurance company, while the out-of-pocket price is the price that the insurance customer faces. Sometimes, the out-of-pocket price depends on the list price.

Draw a set of axes with list price P_L on the y-axis and quantity Q on the x-axis (you will want to make your graph nice and big, because we will be adding several demand curves).
Suppose a consumer’s demand for a particular medical procedure is as follows: Q = 100 - P_P. Draw her demand curve in P_L - Q space under the assumption of no insurance and label it D₁. You will have to think about the relationship between P_L and P_P to draw it correctly.
Now assume the same consumer is fully insured. Think about how this affects the relationship between P_L and P_P and draw a full-insurance demand curve in P_L - Q space. Label this curve D₂.
Now assume the consumer is part of a partial insurance plan with a coinsurance provision. Her insurance pays 50% of all medical expenses. Consider again the relationship between P_L and P_P and plot a coinsurance plan demand curve in P_L - Q space. Label this curve D₃.
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 P_L and P_P and plot a copayment-plan demand curve in P_L - Q space. Label this curve D₄.

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