- Consider the following:
- John wishes to purchase health insurance. He obtains quotes from several companies, but in the end, decides they are too expensive. In economics we might consider this an example of market failure. Use economic terms to explain why the market might be failing in this example. Alternatively, please provide argument(s) that it may not be failing as well. Use clear ideas of the assumptions needed for markets to function.
- John purchased health insurance that covered 100% of the costs of his physician visits. In the year prior to purchasing health insurance, John saw a physician 1 time and paid $150. In the year after purchasing health insurance, John saw a physician 9 times and paid $0.
- What is this effect of increased consumption called?
- What will the likely effect of the health insurance be on health care costs (overall, John, insurer) and on John’s health?
- If you were the insurance commissioner, what sorts of things might you do in insurance design to avoid this effect?
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