ECO HEALTH

Section 5

1. Why do people buy health insurance even if they lose money on average? Describe the two ways through which insurance can create moral hazard.

They can be risk adverse or want to have smooth expenses.

a) Ex-ante: Behavior change before the insured event happens (and this makes the event more likely)

b) Ex-post: Behavior change after the insured event happens (and this makes recovery more expensive)

2. Why is adverse selection problematic for health insurance? How can the government reduce it?

Problem: Death Spiral.

Solution:

a) Block patient choice

b) Restrict product differentiation

3. Explain the basic tradeoff the government faces when choosing patent length and drug prince ceilings?

The longer or more stringent the patent system:

a) The higher the innovation (in principle)

“But”

b) The higher the prices

4. Explain how health technology assessment can be helpful to reduce moral hazard.

· Rationing

5. Describe the basic elements of Bismarck systems.

Universal Insurance + community rating

· Everyone has insurance through employer or gov.

· No premiums. Financing by taxes.

Private providers + regulation

· Price controls

· Solidarity + Liberty

6. Describe the basic features of the private health insurance system in the US before 2010.

1)  Private health insurance markets: where A) Insurance is mostly employer-provided, and Insurers follow a managed care model

2)  Partial universal health insurance: A) Medicare; B) Medicaid; C) However, sizeable uninsured population

3)  Private providers with minimal regulation

7. Briefly explain the regulations introduced by the Affordable Care Act on the individual health insurance market.

A1: Community rating

· Insurers cannot deny coverage to preexisting condition

· Premium can be different based on: Location, tabaco use, age. But not, health status or prev. claim history.

A2: Minimal coverage

A.C.A regulates plan characteristic

- List of benefits that have to be covered

- Actuarial value of at least 60% (coinsurance)

8. Aaron, James, and Thomas live by an Argentina market in Miami Beach. Their daily purchases of fried empanadas, alfajores, and other unhealthy-but-mouthwatering treats are costly and have given them each of extra pounds. One day they all mention that they want to make better food choices and decide to start a healthy restricted diet immediately. Aaron’s discounting function is exponential. James thinks he has the same function as Aaron, but James actually has a hyperbolic discounting function. Thomas has a hyperbolic discounting function and is aware of that. Describe the most likely scenarios for Aaron, James, and Thomas in the weeks following their initial plan.