Question

		Expected Monthly Cost	Maximum WTP for Insurance	Total Expected Monthly Cost
Type of Person	Number of People	($)	($)	($)
Very Healthy	450	100	110	45,000
Healthy	250	550	633	137,500
Unhealthy	100	650	910	65,000
Very Unhealthy	50	5,000	7,500	250,000
Total	850			497,500

How could the model you just examined be extended to more than four types of health insurance consumers?

10. What if the insurance company does incur administrative costs? How would this affect the expected costs of running the insurance policy, the premiums charged, and the consumer surplus of those who buy insurance? (Provide realistic estimates of administrative costs and your reasons).

11. How would the results of this model change if the insurance companies were not required to provide full insurance to everyone and could offer multiple policies ( including one with either a co-pay or deductible?

Answer 1

No it cannot be extended to more than four types of health insurance consumers . Because they are categorised in four parts only - Trailblazers , prospectors , homesteaders and bystanders .

10) administrative costs are an important spending category to consider in total Health insurance expenditure.

The cost of subsidy that covers the specified percentage of policy premiums would be affected by the amount of fixed dolar subsidy on coverage rates would depend on the share of premium it covers .

Reflecting the choices that individuals and family currently make , premium for employment based plans are expected to coverage about dollar 5000 per year for single coverage and about dollar 13000for family coverage in 2009.

11)The results of this model change if the insurance companies were not required to provide full insurance to everyone and could offer multiple choices .

If premium and deductible are included , due to premium consumer need to pay health insurance for the policy period and due to deductible it will be applied to almost all covered items and services . A plan with an overall deductible may also have separate deductibles that apply to specific services or group of services.