Question

Compare and contrast the demand for the medical care related to a specific illness if (1) the consumer does not have health insurance (2) has health insurance that pays for 50% of all medical cost and (3) has health insurance that pays for 100% of all medical cost.

Answer 1

No.1) with no insurance:

If there is no insurance, the cost of medical care would be a deciding and limiting factor to consumers; in this case the consumer has to pay medical care bill from his/her own pocket; the law of demand would be applicable here – at lower cost of medical care the higher would be its quantity demanded, and vice versa. Price elasticity of demand is elastic here, since price of medical care influences the demand directly.

No.2) with 50% insurance:

There is partial (50%) out-of-pocket payment and the other part (50%) is paid by the insurance company; since one side of payment is protected through insurance, medical care cost is not the only limiting factor for deciding; some other components (like standards of care, types of care, and goodwill of the medical care unit) are also considered by the consumers before choosing such care. Price elasticity of demand tends to be inelastic here, since the price of medical care can’t influence on the whole demand.   

No.2) with 100% insurance:

This is fully insured insurance policy. The demand of such insurance is perfectly inelastic to a consumer, since the higher or lower cost of medical care do not influence on its quantity demanded, as it is already insured and the consumer doesn’t have to pay the bill amount.