Ah 511: Income, Risk and Consumer Demand for Healthcare

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Cost:

When deciding to purchase health insurance, it is important to make decisions based on which policy and premium fits your financial situation and health care needs. Different health care polices attract different amount of premiums based on age, state of health and the family history. Other pertinent factors to take into consideration when selecting a plan is how much the deductibles, co-insurance and co-payments cost. Deductible is the initial amount of payment that will be paid by the insured before the insurer can come in. Co-insurance is an arrangement where the insurer covers some part of the risk. A co-payment is the amount paid directly to health service provider on the day of service.

Welfare gains from changes in insurance coverage

Welfare gain is the contribution or the benefits that the population has gained from investing in insurance. The improvements that insurance companies have made over the years have been beneficial consumers that initially might not have qualified for certain coverage plans. Other changes like the development of customized products and resources has enabled the consumers invest in coverage plans they feel are best suited for their individual needs instead of wide scale.

- If only risk-averse people will buy health insurance, why do many people who buy health insurance also buy lottery tickets (an activity more consistent with risk taking)? Speculate on the differences and similarities.

People who buy health insurance are looking to get protected from the uncertain, however they will not know how much that uncertain issue will cost them. Risk-averse people will be reluctant to accept a bargain with an uncertain payoff rather than another bargain with more certain, but maybe lower, anticipated pay off.

The importance of risk aversion will be dependent on the size of risk in relation to an individual's assets and to his/her needs; this can be attached to the individual’s wealth. By buying insurance, I think the individuals will be seeking to protect their wealth, by reducing the risk of paying full cost for health services. Playing the lottery could bring the possibility to increase their wealth. However the returns from both insurance and lottery are uncertain. If the risk of playing the lottery will affect individual wealth, they will be reluctant to take