ECO 343 - Week 4 Notes
ECO 343 - Week 4 Notes ECO 343
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This 4 page Class Notes was uploaded by Alexa Sweeney on Sunday September 25, 2016. The Class Notes belongs to ECO 343 at Grand Valley State University taught by Muller, Leslie in Fall 2016. Since its upload, it has received 7 views. For similar materials see Health economics in Economic Sciences at Grand Valley State University.
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Date Created: 09/25/16
Health Economics Notes – Week 4 9/19 Evolution of insurance plans: know types and characteristics for the exam 1. 1 type of plan: fee for service 2. HMO: lower consumer cost with narrower markets 3. PPO: wider networks and no gatekeeper a. Some coverage out of network fee for service 4. HDHP: high deductible Value Based Insurance Design (VBID) - Determines copay based on what they think your health costs will be in the future Some illnesses are hard to determine so this can be subjective (opinion counts a lot) Fairness issue – I take care of myself, why don’t I get any breaks? ACA Marketplace (Exchanges) Facts about the exchange: Private insurance companies offer plans on a government facilitated exchange Exchange can be state-administered, federally administered, or a partnership o Difference? control over outreach and education, regulation of plans, etc. Open enrollment season is only November 1 to January 31 st o Many exceptions to this rule, such as moving to a new state Levels of coverage: 1. Bronze (60%) – only pay 40% of medical care, and so on… 2. Silver (70%) – largest enrollment 3. Gold (80%) 4. Platinum (90%) – only pay 10% of medical care Premiums (monthly payments) are more expensive as the plan improves; deductibles only increase a little. Most people have silver plans (70%) and then bronze (21%). Are insurers losing money? United Health Care: 2016 o Decreasing its offerings from 34 states to 3 Humana: 2017 o Pulling plans in 90% of current countries Aetna: 2017 o Pulling plans in 70% of current countries Will a decrease in competition drive premiums up? Federal Subsidies Eligibility based on income o Medicaid expansion states 400% > income > 138% poverty line o Non-Medicaid expansion states 400% > income > 100% of poverty line Cannot receive a subsidy if: o Eligible for Medicaid o Employer offers an “affordable” plan o Spouse’s plan offers coverage 9/21 Review: If you are under the poverty line, Medicaid covers you. If you are above the poverty line but are under 400% then you get a discount for health insurance. Asymmetric Information leads to Adverse Selection; this in turn can lead to market failure. Equilibrium – there is 1 price that is acceptable to both the buyer and the seller When there is market failure, there isn’t an equilibrium price. In the article Market for Lemons: Economist named Acherlof 5 sellers Q = quality of the car Q is distributed uniformly between 0 and 1 Q 1 1 peach (best) Q 2 .75 Q 3 .50 Q 4 .25 Q 5 0 lemon (worst) The reserve price depends on quality of the car: Q x 5,000 So… Q 1 $5,000 Q 2 .75(5,000) = $3,750 Q 3 .50(5,000) = $2,500 Q = .25(5,000) = $1,250 4 Q 5 0 Buyers not informed which care is which, but they know that some are better than others. They have a max price that they will spend. How will they determine a max price that they will spend? o What is their average payout? o Find: Q x $7,500(given) Average Q Average .5 So .5($7,500) Buyer’s max $3,500 The first price the auctioneer puts out there is $5,000: Buyers – won’t buy at this price Sellers – all seller’s will accept The second price the auctioneer puts out there is $3,750: Buyers – yes they accept Sellers – the seller with the peach won’t accept (Q , b1) the rest will. o Since Q p1lls out, the buyers should reconsider their price. They assume the person who pulled out has the peach, so before they accept any more prices they lower their max price. o ((.75+.5+.25+0)/4)(7,500) = $2,813 new max buying price The third price the auctioneer puts out there is $2,813: Buyers – yes they will accept Sellers – the seller with the next best car won’t accept (Q , 2)t the rest will. o Q n2w pulls out, and they buyers readjust their max- buying price. This pattern continues down the line. 5 informed people looking for health insurance: The willingness to pay of each person = expected medial expenses. The expenses are distributed evenly between [0,500]. Q 1 $500 (sickest) Q 2 $375 Q 3 $250 Q 4 $125 Q 5 $0 (healthiest) Insurance company (not informed) They will offer out a premium equal to the average expenditure. Average expenditure = $250 Lets say the 1 premium offered up is $250; what would happen? Work through on your own time. 9/23 No lecture this day. Instead, we reviewed the answers to the practice questions posted online on Thursday, 9/22 (not graded).
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