Medicare is a social insurance program for elderly individuals that covers the cost of healthcare if...

Medicare is a social insurance program for elderly individuals that covers the cost of healthcare if they fall sick. Suppose a country decides to enact a similar program called BN-care because it is discovered that many elderly citizen are going bankrupt after they get sick, as the result of high medical costs.

a. What does this bankruptcy situation tell us about private insurance markets? Why might this be the case?

b. Why are consumers willing to pay for insurance, given that the payment reduces their expected lifetime income?

c. Suppose the enactment of BN-care only reduces the percent of elderly who go bankrupt after they get sick by 50%.

What might be going on? (multiple answers possible)

Solutions

Expert Solution

a. Bankruptcy situation tells about the private insurance market is that the insurance coverage for the sick elderly people is not worth of what should have been. This bankruptcy situation of the people indicates more and more number of people should pay for the insurance premiums and get themselves covered under it if they are not insured till now. However, if they are insured then they the consumers should increase their premium to extend the benefits. However, if the consumere are paying the high premium and still getting bankrupt then the private insurance companies should increase their insurance coverage. Private insurance companies might also consider to lower down its premium so that more people can now buy the insurance coverage plans.

b. Consumers are willing to pay for the insurance because medical costs we very high. The savings of the people might fall low in front of high medical costs. Therefore, it's always better to pay for an insurance although the payment might reduce the lifetime payment, in order to avoid any sudden financial losses.

C. If the enactment of BN care reduces the percentage of elderly people going bankrupt by 50%, then this shows the insurance coverage of medical costs under the BN care is not that very high. This is the reason even after paying the insurance amount, people still have to pay money from their own pockets, thus it shows the medical insurance coverage is not that much. Moreover, another reason could be, the BN care insurance premium costs might be high so everyone could not afford it. This is the reason 50% people got bankrupt as they might not have been able to pay for their insurance premiums.

Rahul Sunny answered 1 year ago

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