Health Economics
14th Edition
ISBN: 9781137029966
Author: Jay Bhattacharya
Publisher: SPRINGER NATURE CUSTOMER SERVICE
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Chapter 7, Problem 16EQ
To determine
Explain the uninsurable risks.
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The Akerlof model can be used to model the health insurance market. In this market, which party is analogous to car buyers? Which party is analogous to car sellers?What would it mean for the health insurance market to unravel?
The fact that most medical care purchases are financed through insurance:
a. has no effect on health care consumption because aggregate costs are the same regardless of payment method.
b. reduces the amount of health care consumed by raising the price of additional units of care.
c.has decreased health care costs and therefore reduced aggregate health care expenditures.
d. increases the amount of health care consumed by reducing the price of additional units of care.
Suppose, if ill, that Fred’s demand for health services is summarized by the demand curve Q = 50 − 2P , where P is the price of services. How many services does he buy at a price of $20? Suppose that Fred’s probability of illness is 0.25. What is the actuarially fair price of health insurance for Fred with a zero coinsurance rate? If the insurance company pays Fred’s entire loss, will the insurance company offer him insurance at the actuarially fair rate? Why?
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