Question

Explain how a mandate that health insurance covers post-operative home health visits would affect the demand for post-operative inpatient hospital care?

Answer 1

If a mandate is made that health insurance should cover post-operative home health visits, it will mean that the customers who have availed health insurance will no longer have to pay extra (or at least not as per market rates if the insurance is co-pay) for post-operative home health visits. The insurance companies will have to bear the cost of those visits.

Lets first make the assumption that the insurance costs will remain same and that the insurance companies will not hike the insurance premiums because of the mandate. Lets also assume that post-operative inpatient hospital care is already being covered under insurance.

It is to be noted that the question is asking for the impact of this mandate on post-operative inpatient hospital care- which is already covered under insurance.

In economic terms, these 2 types of cares- post-operative inpatient hospital care and post-operative home health visits are substitute goods. This means that one of these can be used in place of the other. Both will give the same utility to the consumer. Earlier post-operative inpatient hospital care was a cheaper good with same utility, as it was covered under insurance. Now post-operative home health visits has the same cost (that is, of insurance) and also has the same utility. This means that it’s demand will increase, and since these are substitute goods, the demand of post-operative inpatient hospital care will decrease.