Question

1. Describe and contrast the conventional and Nyman models of the demand for health insurance?

2. Discuss the economic reasons for government intervention in a market-based health care system. Please be sure to incorporate the reasons identified in your text (Health Economics: Theory, Insights, and Industry Studies (6th Edition)) as well as any additional reasons you wish to provide. Provide a critique of these reasons?

3. Describe the structure and operation of Medicaid, Medicare and State Children’s Health Insurance Programs (SCHIP). Discuss the implications the proposed “repeal and replacement of the Affordable Care Act” would have for the three programs listed above.

Answer 1

The conventional model of health care by Nyman says that demand of health insurance in people has increased as they find it convinient to pay small insurance amounts to cover big medical bills in case of illness. The theory also implies that people purchase extra health care because they are covered under the insurance which is not worth of the cost of production. Ther people try to obtain extra income from the medical bills when they get ill by getting covered under insurance plans. Hence the otherwise applicable reason to get insured is to avoid risk does not apply in the health insurance where it is taken to pay a premium when they are healthy and claim an additional income when they fall sick. Hence if seen in the long term the realk purpose of the health insurances has not been fulfilled.

Nyman argues in his theory that if the person cannot pay for the cost of treatment for the illness then he is not buying the health insurance for avoiding the risks. The new theory has left behind the traditional theory of health insureace for risk avoidance and instead focus on welfare maximization. The health insurance is used more for the purpose of price reduction more than an income transfer from the ones who can afford to pay the insurance and remain sick to the ones who cannot afford the extra bills.