ECO 506– Health Care Economics. Lecture Notes. Health Insurance. I. The demand for Health Insurance Definitions: Deductible: when the patient pays all the price for a certain range Coinsurance: the insurer pays only part of the price, the patient pays the rest
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25,000+ k -yk
So depends upon the individuals shape (preferences) of utility of money curve
Risk averse individuals always buy insurance when the premium is actuarially fair as it was in our example.
But it costs more money to provide insurance (i.e. transaction costs of gathering premiums, paying for losses, etc.
5. As the price of insurance increases => buy insurance for fewer events (less insurance) where price = amount willing to pay above pure premium.
Rises assuming costs increases as the # of claims increases due to rising transaction costs
MC = S
3rd: Prepaid plans like HMOs and PPOs focus on Drs and patient incentives not just patient thru coinsurane or deductibles.
% of ind.
Size of exp.
Mc = mc*
An indemmity policy keeps the relative prices of the two goods the same since it reimburses for all medical expenditures
MC = MC*
Service benefit insurance creates more problems. i.e. inefficiency while indemmity insurance does not.
M + 300/Pc
M/Ph M + 300/Ph
(1) Economies of Scale: book notes that there are many firms (> 1,000) in the insurance industry
One possibility is that hospitals are trying to increase utilization of their expense services. BC provides more comprehensive coverage than most hospital plans.
Medicaid Changes- basically eliminated the patients right of provider choice => states could negotiate with “efficient” providers
B) Competition from alternate forms of health care providers. Like HMOS/PPOs