Question

Health insurance affects the demand and supply of medical care

"please answer all parts neat and organized"

(a.) Draw a diagram to show the equilibrium in the market for medical care. Label all the curves and the axes carefully.

(b.) in the diagram of a, show the effect of decrease in the percentage of co- insurance (e.g., 50% to 10%) on the medical service demand curve.

(c.) Show the effect of the change in (b) on the equilibrium price and consumption quanity of medical care in the same diagram. Briefly Explain the effects

Answer 1

a) Price is shown in Y axis and Quantity on X-axis. the equilibrium point is where the price is the P and the quantity is Q.

b) Co-insurance is the amount of money insurance company pays in the case of hospitals bills. 50% co-insurance means that if you are admitted to hospital, insurance company will pay 50% of the bill while 10% co-insurance means paying 10% of the total bills which is the loss of 40% of the total bill amount to insurance customer which will reduce the customer incentive to consume goods.

c) Price shifts from P to P1 and output falls from Y to Y1 or the equilibrium falls from point A to B.