An important distinction created by health insurance is between the list price (PL) and out-of-pocket price (PP) of a medical good or service. The list price is the official price that the provider charges the insurance company, while the out-of-pocket price is the price that the insurance customer faces. Sometimes, the out-of-pocket price depends on the list price.
1. Draw a set of axes with list price PL on the y-axis and quantity Q on the x-axis (you will want to make your graph nice and big, because we will be adding several demand curves).
2. Suppose a demand for a particular medical is as follows: Q =100- PP Draw her demand curve in the figure under the assumption of no insurance and label it D will have to think about the relationship between PL and PP to draw it correct.
3. Now assume the same consumer is fully insured. Think about how this affects the relationship between PL and PP and draw a full-insurance demand curve in PL ? Q space. Label this curve D2
4. Now assume the consumer is part of a partial insurance plan with a coinsurance provision. Her insurance pays 50% of all medical expenses. Consider again the between PL and PP and plot a coinsurance-plan demand curve Label this curveD3.
5. Finally, assume the consumer is part of a partial insurance plan with a copayment provision. Her insurance pays all expenses above and beyond her copayment of $25 for each unit of Q. Consider again the relationship between PL and PP and plot a copayment-plan demand curve in PL ? Q space. Label this curve D4.
6. Now assume this service has a list price of PL = $70. Calculate Q under each insurance plan (you may feel free to use your graph to aid your thinking).