Lecture 7: Health Insurance Flashcards
(29 cards)
Insurance
Brought through private markets to protect against uncertainty.
Social Insurance
Government are the insurers and are financed through premiums and participation.
Premium
Paying for certain amount of coverage.
Deductible
Individuals have to pay a certain amount for insurance to kick in. Usually set by ins. companies.
Exclusions
When some services are not covered by the insurance.
Coinsurance & Copayment
Individual pays a loss or liability that occurs when an event takes place.
Risk Aversion Utility ___ but @ a ____ rate
Risk Aversion Utility increases but @ a decreasing rate.
Risk Aversion: U1 __ 0 and U2 ___ 0
U1 > 0 and U2 < 0 (Happens two ways)
Risk Aversion Individuals
Individuals who want to protect themselves and will most likely buy insurance.
Risk Loving Individuals
Individuals who are not interested in buying insurance.
Risk Loving Utility ___ @ a ___ rate.
Utility increasing @ a increasing rate
Risk Loving U1 ___ 0 (___ @ a ___ rate) and U2 ___ 0.
U1 > 0 (increasing @ a decreasing rate) and U2 > 0
Risk Neutral Individuals
They are indifferent in either buying or not buying insurance.
Risk neutral has a ___ line.
Risk neutral has a constant line.
Risk neutral: U1 __ 0 or U2 ___ 0.
U1 >0 or U2 = 0.
Moral Hazard
When people purchase more services since they have insurance and will be less careful.
Demand of Care with Inelastic Demand…
Insurance will have no impact on the quantity demanded.
Formula of expenditure for inelastic Demand of Care:
P1 x Q1.
Demand of Care with Elastic Demand
Where Moral Hazard happens because insurance increases the quantity demanded.
Dead Weight Loss
Extra Cost Where No One is Gaining.
Patients w/out Insurance: Marginal Cost will ___ be ___ to Marginal Benefit.
Marginal Cost will always be equal to Marginal Benefit.
Deadweight Welfare Loss
Comes from misallocation of resources among goods (more healthcare is provided than should be according to consumer preferences).
What two things arise as devices to reduce welfare loss?
Coinsurance and deductible
Why is Moral Hazard Too Much??
Because as represented in graph, we paid P1 (Q2 - Q1) more.
