At this point my understanding of Healthcare economics Question 13 options: Is good for the content covered Reasonably good for content covered Some understanding but less than 50% I don't get it at all A and B
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Consider two potential buyers of health insurance who purchase health care (preventing any impact on their health) whenever hit by a health shock (much like the potential buyers in question 2). We may therefore think of health shocks as affecting only the potential buyers’ consumption expenditure, and we may describe their utility in any period as a function only of their consumption expenditure. Potential Buyer A’s utility in any state of the world is given by uA(C) = C, and Potential Buyer B’s utility is given by uB(C) = C^0.5, where C equals consumption expenditure in pesos. Each faces three possible states of the world, each of which occurs with a probability of 1/3. In the best state, the potential buyer is hit by no health shock and enjoys C=200. In both the intermediate and worst states of the world, he is hit by a primary health care shock, which reduces his consumption by 30 pesos. In the worst state of the world, he is also hit by a catastrophic health care shock that diminishes his consumption by 60 pesos. In the absence of insurance, then, his consumption falls to 170 in the intermediate state of the world and to 110 in the worst state of the world. An insurer offers two insurance contracts. Contract 1 pays 30 pesos in the event of a primary health shock. Contract 2 pays 60 in the event of a catastrophic health shock. a. What is the expected value of the insurer’s indemnity payout to a buyer under each contract? b. If offered the opportunity to purchase only Contract 1 for a premium of 20, paid before the state is revealed, would Person A accept? Would Person B? Explain. c. If offered the opportunity to purchase only Contract 2 for a premium of 20, paid before the state is revealed, would Person A accept? Would Person B? Explain. d. If offered the opportunity to purchase only one of the two contracts for a premium of 20, would Person A prefer Contract 1, prefer Contract 2, or be indifferent between the two? What about Person B? Explain. e. Explain as intuitively as possible why, for at least one of the two potential buyers, Contract 2 (which offers catastrophic care insurance) is more valuable than Contract 1 (which offers the same expected value of indemnity payments but covers primary care shocks).
Akash M.
Let’s consider the health insurance market. Suppose there are two types of consumers: those with pre-existing conditions and those without. Those with pre-existing conditions make up 10% of consumers. All consumers are risk-averse with utility function, U left parenthesis X right parenthesis equals square root of X. Those with pre-existing conditions require medical care 50% of the time. Those without require medical care 5% of the time. Assume each consumer has an initial wealth of $1000 and medical care costs $500. If the insurance companies are allowed to sell insurance at different prices to the two types of consumers and competition forces them to charge the fair insurance premium, consumers without pre-existing conditions ___________ insurance at a price of $__________. Consumers with pre-existing conditions insurance ____________ at a price of $ _______________. Now suppose the government passes a law that bans discrimination on the basis of pre-existing conditions. In this case, the insurance companies can no longer offer insurance at two different prices (they can only charge a single price). In this case, in equilibrium, consumers without pre-existing conditions insurance _______________ at a price of $______________. Consumers with pre-existing conditions insurance ________________ at a price of $ ________________. Relative to before the law is passed, consumers without pre-existing conditions are _________________ off. Consumers with pre-existing conditions are ________________ off. DROP DOWN OPTIONS: 0 10 25 47.5 100 125 227.5 250 BUY DONT BUY INDIFFERENT BETWEEN BUYING AND NOT BUYING BETTER NEITHER BETTER OR WORSE WORSE
Aishwarya K.
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