Chapter 8, Problem 1DQ

To determine

The possibility of private insurance companies blocking the payment for kidney donation so as to curb the supply of donation.

Explanation of Solution

In the given case, the chronic diseases are already known to the patient as well as to the insurer. So, to insure a person suffering from a chronic disease will lead to a definite cost incurred by the insurer.

On the other hand, a person who does not have any chronic disease, does not put a definite cost burden on the insurer, as there are equal chances of having a disease and not having a disease. So, in such a situation, there may be a gain or a loss to the insurer.

Though in the case of chronic disease, the insurer does not gain as he cannot say no to insured persons. Considering the fact that insurance companies are not meant just to earn profits, they must make continuous efforts to reduce the risk of insurance bearers.

As the concentration of power is in few hands, namely private insurance companies, so they would block payments for kidney donors. This is done to reduce the increased costs they have to bear due to increased transplants. So there is an economic incentive for them to oppose the idea of payments to donors given the cascading costs associated with increased transplants.

Economics Concept Introduction

Concept introduction:

Cost refers to a particular amount that is incurred by a firm or an individual to acquire an asset or a service.