Medigap is a private insurance product that causes governmentexpenditures through Medicare to be higher than...

Medigap is a private insurance product that causes government expenditures through Medicare to be higher than otherwise. Let’s see how we can estimate just how much more the government spends as a result. 70 yr old Mr. Smith has frequent need for doctor-administered injections that improve his hip functioning. His demand for these treatments is given by P=30-0.60Q where P is the full market price of the service (if Mr. Smith had no insurance), and the supply of these treatments is given by P=15.

Lets see what happens if the government tries to get people to stop buying Medigap. Suppose that Medicare consists of 10 million people like Mr. Smith (and that is it). The elasticity of demand for Medigap is -1.5 and a Medigap policy costs $100 a year. The government imposes a 20% tax on Medigap plans. How much government revenue would be raised by the tax, and how much government spending on Medicare would be saved through the effect the tax has on people’s purchases on Medigap plans?

Expert Solution

Answer : Tax revenue = 20% on $100 = $20 per policy

$20 × 10 million = $200 million

Total Tax revenue will be $200 million by government.

Elasticity of demand is 1.5 that means it is elastic which means rise in prices will have major negative impact on quantity demanded.

Quantity demanded will be decreased 1.5 times then rise in prices.

People will reduce their demand with rise in prices due to imposing of taxes by government for Medigap plans as price elasticity of demand for Medigap plans is elastic.

Rahul Sunny answered 1 year ago

Medigap is a private insurance product that causes government expenditures through Medicare to be higher than...

Medigap is a private insurance product that causes government expenditures through Medicare to be higher than otherwise. Let’s see how we can estimate just how much more the government spends as a result. 70 yr old Mr. Smith has frequent need for doctor-administered injections that improve his hip functioning. His demand for these treatments is given by P=30-0.60Q where P is the full market price of the service (if Mr. Smith had no insurance), and the supply of these treatments...

Is Medicare Advantage riskier than other forms of private health insurance?

Many elderly people have purchased medigap insurance policies to cover a growing Medicare copayment. These polices...

Many elderly people have purchased medigap insurance policies to cover a growing Medicare copayment. These polices cover some or all of the medical costs not covered by Medicare. use economic theory to explain how these policies likely influence the demand for health care by elderly people.

In Table 1.5, examine the private health insurance, Medicare, and Medicaid components. Which category grew the...

In Table 1.5, examine the private health insurance, Medicare, and Medicaid components. Which category grew the most between 1970 and 2014? Between 2000 and 2014? What factors might have led to the differences in the growth rates? 2. The growth rates between 1970 and 2014 are calculated as follows: Private health insurance = (868.8/14.1)-1 = 6061.70% Medicare = (580.7/7.3)-1 = 7854.80% Medicaid = ( 444.9/5)-1 = 8798% Hence, Medicaid had the highest growth rate between 1970 and 2014. Similarly, The...

1. When the social cost of producing a good is higher than the private cost, then...

1. When the social cost of producing a good is higher than the private cost, then A) positive externalities exist. B) there are no externalities. C) negative externalities exist. 7. If pollution exist in a market, A) the supply curve would be lower than optimum and the equilibrium quantity higher than optimum. B) the supply curve would be higher than optimum and the equilibrium quantity lower than optimum. C) the supply curve would be higher than optimum (efficient) and the...

Through a review of health insurance options to include the Affordable Care Act, Medicare, Medicaid and...

Through a review of health insurance options to include the Affordable Care Act, Medicare, Medicaid and private care insurance, describe in detail the best health insurance options for the following people: 1. Single mother (age 29) mother of three kids (Age 3, 9, 12). Income $29,000/year, no child support. 2. Family of 5 (Mom 39, Dad 42; Kid # 1 13, Kid # 2 10 and Kid # 3 8). Combined income 672,000/year 3. Single widower age 70, living alone,...

Medicare Hospital Insurance The average yearly Medicare Hospital Insurance benefit per person was $4064 in a...

Medicare Hospital Insurance The average yearly Medicare Hospital Insurance benefit per person was $4064 in a recent year. Suppose the benefits are normally distributed with a standard deviation of $460 . Round the final answers to at least four decimal places and intermediate z-value calculations to two decimal places. Part 1 of 2 Find the probability that the mean benefit for a random sample of 26 patients is less than $3920 . =P<X3920 Part 2 of 2 Find the probability...

After several days of not eating, one's nitrogen excretion is higher than normal. What causes this...

After several days of not eating, one's nitrogen excretion is higher than normal. What causes this high level of nitrogen excretion initially? After a week and a half of no food, one's nitrogen excretion falls. Why causes it to fall? After nitrogen excretion falls and all fat sources have been drained, the nitrogen excretion increases, once more. Why is that?

Public goods have a marginal social benefit that is higher than the private demand curve. (Why...

Public goods have a marginal social benefit that is higher than the private demand curve. (Why is that?), absent intervention-> the equilibrium will be at the lower price and quantity than the socially optimal level (Why is that?), How government uses tax and quota to lower the dead weight loss caused by the externality?

What’s the difference in social insurance, such as Medicare, and actuarial insurance, such as car insurance,...

What’s the difference in social insurance, such as Medicare, and actuarial insurance, such as car insurance, and why is the difference important in health care?

Question