Consider how health insurance affects the quantity of healthcare services performed

Chapter 7, Problem Problems and Applications 7.11

(choose chapter or problem)

Consider how health insurance affects the quantity of healthcare services performed. Suppose that the typical medical procedure has a cost of $100, yet a person with health insurance pays only $20 out of pocket. Her insurance company pays the remaining $80. (The insurance company recoups the $80 through premiums, but the premium a person pays does not depend on how many procedures that person chooses to undertake.) a. Draw the demand curve in the market for medical care. (In your diagram, the horizontal axis should represent the numberof medical procedures.) Show the quantity ofprocedures demanded if each procedure hasa price of $100.b. On your diagram, show the quantity ofprocedures demanded if consumers payonly $20 per procedure. If the cost of eachprocedure to society is truly $100, and ifindividuals have health insurance as justdescribed, will the number of proceduresperformed maximize total surplus? Explain.c. Economists often blame the health insurancesystem for excessive use of medical care.Given your analysis, why might the use ofcare be viewed as excessive?d. What sort of policies might prevent thisexcessive use?