Please answer questions on word doc, show work for graph questions.
Adverse Selection
Imagine a health insurance market with 100 people. In this market in Year 1, 40 people expect to have $0 in health expenses per year, 35 people expect to have $250 in health expenses per year, 12 people expect $5,000 in health expenses per year, 10 people expect $10,000 in health expenses and 2 people expect $25,000 in health expenses and 1 person expects $40,000 in health expenses over the entire year. Assume insurance covers 100% of medical expenses and premiums are equal to expected costs.
What is the expected cost of insurance in year 1? Note, use this premium as the Y1 premium across all parts of this problem.
In Year 1 how many people would choose to buy insurance and how many would not choose to buy insurance based on the premium and their expected benefits?
What would the Y2 premium be based on the individuals who choose to buy insurance?
Describe adverse selection in health insurance in your own words
B. Administrative Costs
Health care has relatively high administrative costs (about 15% of total costs).
Assume the current cost of health care (including administrative costs) is $500 per person per month (PMPM)
i. How much of the $500 is due to administrative costs?
ii. How much is due to non-administrative costs?
iii. If administrative costs are reduced to 5% of total costs, what is the new total cost?
iv. If Demand is 100M at $500 and 0 at $1000, graph on graph paper the Demand at the new price? (Hint, no supply curve here, only demand curve)
v. Describe what is happening in words
Essays (2 Paragraphs)
“The Role of market Forces in U.S. Health Care” by Mike Chernew describes key issues in health policy and what to do about it.
Describe two issues causing market forces not to work well for health care
Name one place where markets have been successful in health care?
What would you do to improve health care markets in the United States
Comparative Health Systems
Please describe 2 similarities between the German healthcare system and the US health care system
Please describe 2 differences between the German healthcare system and the US healthcare system
What does the US do better than other countries in the world at? What does it do worse than other countries from a health care perspective
What is the main takeaway of the article, “It’s the Prices Stupid”. Do you agree? Why or why not?
