Question

Bill is an aging snowboard instructor at a local ski resort. All winter, he takes over the counter pain medication to deal with his aching joints. Each summer, he moves home with his parents and takes a part time job making minimum wage. This summer, he got qualified for and enrolled into state government subsidized health insurance. Now he plans to undergo arthroscopic surgery by the end of the summer to repair his knee. Use the terms insurance, third party payer, moral hazard, adverse selection and social welfare loss to assess this situation.

Answer 1

Bill is an aging snowboard instructor at a local ski resort. All winter, he takes over the counter pain medication to deal with his aching joints. Each summer, he moves home with his parents and takes a part time job making minimum wage. This summer, he got qualified for and enrolled into state government subsidized health insurance. Now he plans to undergo arthroscopic surgery by the end of the summer to repair his knee. Use the terms insurance, third party payer, moral hazard, adverse selection and social welfare loss to assess this situation.

Answer: supposr here if he take insurance then Assymetry information can arise here for taking insurance he had to pay premium whether high/ low premium. Here bill is buyer and the seller is insurance company. Bill know his health situation very well but insurance company have less information about that so there can be a problem of adverse selection that is whether to select high premium or low premium. There can be a situation of moral hazard suppose bill for his surgery go to doctor for treatment doctor have every knowledge about medicine cost and overall surgery cost but he can charge higher price for surgery this will cause a moral hazard problem.

As in this situation bill don't have car so not have chance of creating the situation of third party. Third party is only there when there is another individual who causes the accident.

Here is welfare loss to bill if doctor charge extra money or if there uncertainty of paying premium.

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