Question

Suppose that hospitals charge by the day and that the typical hospital charges $1000 per day but some charge more and some charge less, and that insured consumers can choose any hospital. What do you think of this argument? “With respect to consumer incentives about use of hospital care there is no difference between a $100 per day copayment and 10 percent coinsurance.”

Answer 1

Medical expenses now are a critical part of our day to day livelihood expense. We have almost accepted the expenses related to our medical conditions as a coherent expense. Sometimes, medical expenses are meagre and easily controlled, however, at times, medical expenses are huge and catch us off guard, which not only piles up huge pressure on us and drains our finances. As per the given condition, the hospitals charge day by day, where a typical hospital charges $1000 per day, some hospitals charge more and some hospitals less. It is also given the consumers who have medical expenses insured can opt for any of the hospitals, where, the facilities they get, and the nature of the treatment meted out to the consumers is of equivalent nature. This means that, irrespective of which insurance package they opt for, they can choose any of the hospitals.

                                    Here, we must realize that a hospital which charges $1000 per day to a consumer will have facilities of a higher degree and better options available for the patients, however, when it comes to the insured consumers, they are having to put forward the same level of service which would probably be of a much higher cost to them. Whereas, for the hospitals which charge much lesser than $1000 per day to a consumer will thereby have facilities of a considerably lesser degree and lesser options available for the patients, however, when it comes to the insured consumers, they are having to put forward the same level of service which would probably be of a much lower cost to them. Therefore, we can see that services of both lesser and higher quality would thereby cost similar to the consumers. In such a situation, the consumers will, almost all the time, choose to opt for the better hospitals, which would mean that the hospitals with lesser facilities will most likely run out of the market due to lesser and lesser consumers opting for them. This argument also augments with the condition given that there is no difference between a $100 per day copayment and 10% coinsurance. This statement further shows that there is no special importance given to better facilities for the insured consumers. In such a situation, the consumers will only want to choose the better and costly hospitals, which would boost the business of these hospitals and run out the smaller hospitals from the market.