PHP 0310 Lecture Notes - Lecture 5: Forego, Risk Pool, Co-Insurance

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4 Feb 2017

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Premium: amount you pay to purchase insurance: comes out of paycheck (if employer-based, monthly bill (if individual insurance) Deductible: amount an individual/family has to pay out of pocket each year before insurance takes effect: high deductible health plans, first dollar coverage: first dollar coverage. Co-pay: fixed amount that insured person has to pay at the time a service is provided ($) Co-insurance: a fraction of the cost of a service that insured person has to pay (%) Counterbalancing moral hazard: balance or tension. No insurance/poor insurance: little protection against financial losses. Too much/poorly structured insurance: unnecessary or wasteful utilization. Rand health insurance experiment (1980s: textbook p482 or http://www. rand. org/pubs/research_briefs/rb9174. html, study of the impact of cost sharing on utilization and health outcomes, patients and families randomized to different levels of cost sharing, followed 3-5 years. Levels of co-insurance: 0, 25, 50, 95: outcome: the higher the co-insurance %, the lower the utilization of services.

Related Questions

1. What would a renterâs insurance policy cover in case of a fire? (Points : 2)

Damages to your neighbor's personal property
Any damages to the building structure
Temporary living expenses, like hotel
Your monthly paycheck

Question 2.2. The insurance designed to help with nursing home or in-home care due to chronic illness is called: (Points : 2)

Medicare
Major medical
Comprehensive major medical
Nursing home care
Long-term care

Question 3.3. A liability suit could result when: (Points : 2)

Lightning strikes your home
Your son falls down the stairs of your home
Your automobile is stolen
Your dog bites the neighbor
Smoke from the fireplace fills your house

Question 4.4. What approach, would determine the amount of life insurance for your family to maintain its current lifestyle and funds after your death? (Points : 2)

Earnings multiple approach
Needs approach
Cash liquidity approach
Funds analysis approach

Question 5.5. The basic purpose of insurance is: (Points : 2)

Protect your health
Protect you from the risk of loss
Supplement your income
Help you from making bad decisions

Question 6.6. Basic health-care benefits cover: (Points : 2)

Hospital expenses only
Hospital and surgical expenses
Hospital, and surgical and physician expenses
There is no basic health-care insurance

Question 7.7. For auto insurance, property coverage pays for: (Points : 2)

Your legal responsibility to others for bodily injury
The cost of treating injuries, rehabilitation, lost wages, and funeral costs
Damage or theft of your car
All of the above

Question 8.8. Life insurance policy designates a primary person who is intended to be provided for. Who is this person? (Points : 2)

beneficiary
contingent beneficiary
policyholder
insured

Question 9.9. Which statement accurately describes term life insurance? (Points : 2)

Provides no investment features
Costs more than other types of life insurance
Has premiums that decrease over one's lifetime
Pays benefits to the insured when the insured reaches age 65

Question 10.10. What is the primary purpose of buying life insurance? (Points : 2)

as a tax shelter
to provide protection from financial losses
as an investment
to cover personal property

graygnu887

Question 11 One potential remedy to the tragedy of the commons is to: never allow a single individual to consume more than one percent of the common resource. criminalize the usage of common resources. allow individuals to use a common resource as long as they receive some benefit from doing so. place a common resource under private ownership. 4 points Question 12 As a result of a positional externality: contestants have a tendency to invest in a series of mutually offsetting investments in performance enhancement. there is generally an underinvestment in performance enhancement. the market price of performance enhancement materials is too high. the quality of performance in competitive situations is lower than the socially optimal level. 4 points Question 13 Which of the following statements is true regarding health insurance? Economics shows that all health related procedures should be free to individuals because the health of an individual is priceless. Total economic surplus would be larger if individuals faced an incentive to only use services when the benefit exceeds their costs. Health maintenance organizations provide an incentive for doctors to prescribe expensive nonessential services. First dollar insurance coverage has likely had very little to do with rising healthcare expenditures since World War II. 4 points Question 14 A strategy that yields a higher payoff no matter what the other players in the game choose is known as a: prisoner's strategy. dominated strategy. dominant strategy. Nash strategy. 4 points Question 15 Based on the diagram below, if the costs of hospital care are constant at $200 per day, and the individual does not incur any cost for each day for hospital care, then: the individual will stay 7 days and there will be no loss in economic surplus. the individual will stay 3 days and there will be no loss in economic surplus. the individual will stay 7 days and there will be lost economic surplus. the individual will stay 3 days and there will be lost economic surplus. 4 points Question 16 Economic research by Manning and colleagues suggests that people with deductible health insurance policies: spend substantially less on health care and have substantially worse health outcomes compared to people with first-dollar insurance coverage. spend substantially more on health care and have substantially better health outcomes compared to people with first-dollar insurance coverage. spend basically the same amount on health care and have substantially worse health outcomes compared to people with first-dollar insurance coverage. spend substantially less on health care and have no measurable difference in health outcomes compared to people with first-dollar insurance coverage. 4 points Question 17 An efficient program for reducing pollution is one for which: all polluters incur the same total costs of abatement. all polluters pay the same amount in taxes to the government. all polluters have the same marginal costs of abatement. all polluters reduce their emissions by the same amount. 4 points Question 18 Given the information on pollution abatement costs of the two firms shown below, which of the following is an efficient combination of pollution reduction? Quantity of pollution abatement Firm A's MC of abatement Firm B's MC of abatement 1 $30 $25 2 $35 $30 3 $40 $35 4 $45 $40 Firm A reduces by 1 ton and Firm B reduces by 1 ton. Firm A reduces by 2 tons and Firm B reduces by 3 tons. Firm A reduces by 4 tons and Firm B reduces by 1 ton. Firm A reduces by 3 tons and Firm B reduces by 2 tons. 4 points Question 19 All of the following are characteristics of perfectly competitive markets except: there are a large number of firms. productive resources are mobile. all firms produce a differentiated product. buyers and sellers are well informed. 4 points Question 20 An advantage of the auction method to pollution abatement is that: it is very expensive to firms. regulators can achieve a desired abatement target without having detailed knowledge of the abatement technologies available to polluters. it requires all firms to reduce by exactly the same amount. it assures that eventually society will reach a level of zero pollution emissions. 4 points Question 21 There are 2 firms each emitting 200 tons of a pollutant. Firm A's abatement costs are constant at $20/ton, and Firm B's abatement costs are constant at $40/ton. The government's goal is to reduce pollution by half. If the government auctions 200 one ton permits to the highest bidder: Firm A will purchase all 200 permits. Firm B will purchase all 200 permits. each firm will buy 100 tons. there is no way to know who the highest bidder for any permit would equal. 4 points Question 22 As a result of economies of scale, as output expands: fixed costs are decreasing. average total costs are decreasing. marginal costs are increasing. total costs are decreasing. 4 points Question 23 Generally, when countries open their borders to free trade: both domestic producers and consumers of imported goods gain. both domestic producers and consumers of exported goods gain. domestic producers of imported goods and domestic consumers of exported goods gain. domestic producers of exported goods and domestic consumers of imported goods gain. 4 points Question 24 Which of the following is the best example of a tariff? South Korea bans imports of U.S. beef because of safety concerns. The U.S. requires toys imported from China to undergo testing for lead content. The U.S. imposes a tax on sugar imported from Brazil. The U.S. restricts the quantity of cars imported from Japan. 4 points Question 25 A means-tested program is a benefit program: in which benefits decline as a recipient's earned income increases. in which all individuals must undergo health screening to be eligible for benefits. in which all recipients exclusively receive benefits through in-kind transfers. that only affects the average income of a specific segment of the population. 4 points Save and Submit Click Save and Submit to save and submit. Click Save All Answers to save all answers.

Mary and Harry Reser, 57 and 62, are looking ahead to retirement early next year. They are thinking about heading south to a cheaper and warmer state but haven't made a firm decision. Harry is the sole breadwinner and earns $64,543, plus an additional $8,169 from investments.

The Reser's two main concerns are longevity and taxes. "We want to take income from investments with the least amount of tax liability and make the money we have accrued last as long as we do," notes Harry. He also noted a concern about taking money out of tax-deferred plans in the correct manner to avoid IRS penalties.

The Reser's can be considered "millionaires next door," with an impressive net worth of $1,065,951. They have absolutely no debt and the following assets: $32,000 in a 2% bank passbook account, $347,365 in telephone stock; $224,901 in Harry's 401(k); $31,000 in an annuity; $202,685 in mutual funds; $23,000 in whole life insurance; their $190,000 home; and $15,000 of personal property.

No information was provided as to the type of mutual funds or the 401(k)'s asset allocation (i.e., the percentage of the account in different types of assets like stocks and bonds). Harry contributes 15% of his salary to the 401(k) and appears to have been doing this for many years. Neither spouse has an individual retirement account (IRA), however.

The Resers estimate that their monthly expenses total $1,500. The are concerned about the future cost of health care and note that, in retirement, "the biggest expense not in our current budget will be medical insurance." Currently, Harry shares part of the cost of health coverage with his employer but this coverage will end after he retires. His employer also provides short-term disability coverage and matches his 401(k) contribution up to the first 8% of pay.

The Reser's car and home have $500,000 and $300,000 of liability coverage, respectively. They do not own an umbrella liability policy. The Resers are thinking of tapping their $23,000 of life insurance cash value. "We do not feel that we need life insurance any longer," says Harry, "and will most likely cash them in."

Taxes were mentioned several times as a major concern. The Reser's taxable income is $50,543. If their adjusted gross income in retirement exceeds $44,000, 85% of their Social Security benefits will be taxed. Tax on Social Security is figured on what is known as "preliminary adjusted gross income." This figure includes all earnings, pensions, dividends and interest from investments, including tax-free municipal bonds, and half of a person's Social Security benefit.

The Resers do not have wills. They have no children and it is unclear who their heirs are.

1. Discuss the strengths and weaknesses of the Rese family's financial situation.

Their strength is their net worth of $1,065,951, their job contribute 8% of their 401k, they invest for the future and they have no debt.

Their weakness is that they can be penalize by the IRS, they have no kids so thereâs no will and they have no future health insurance.

2. Comments about Reser family's cash flow.

4. Calculate the savings required to reach Reser familyâs financial goals.

5. Recommend 3 to 5 action steps to improve Rese family's financial.

6. Recommended financial products such as bank accounts, insurance policies, and mutual funds for Reseâs family.

PHP 0310 Lecture Notes - Lecture 5: Forego, Risk Pool, Co-Insurance

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