Consider how health insurance affects thequantity of healthcare services
Chapter 7, Problem 11(choose chapter or problem)
Consider how health insurance affects thequantity of healthcare services performed.Suppose that the typical medical procedurehas a cost of $100, yet a person with healthinsurance pays only $20 out of pocket. Herinsurance company pays the remaining $80.(The insurance company recoups the $80through premiums, but the premium a personpays does not depend on how many proceduresthat person chooses to undertake.)a. Draw the demand curve in the marketfor 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?
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