To draw the employee’s opportunity set and show how the opportunity set would change if the employee receives $200 worth of health insurance.

Question

A recent trend in health insurance is the Health Savings Account (HSA). The idea behind Health Savings Accounts is that rather than providing employees with health insurance that makes visiting doctors cost little more than a simple $10 or $20 copay the employer gives the employee money to use to spend on health care, but the employee bares the entire cost of seeing the doctor. What money given for health care not spent by the employee can be withdrawn by the employee as if it was additional income. It is believed that Health Savings Accounts will reduce the total amount of money spent on seeing doctors. Using Supply and Demand analysis, explain why there is the expectation that HSA’s will reduce spending on doctors.

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Question

Chapter 4, Problem 15PAA

To determine

To draw the employee’s opportunity set and show how the opportunity set would change if the employee receives $200 worth of health insurance.

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