Applied Micro Essay Notes
Economic evaluation is
Define Public + Private healthcare
Define Merit Good (healthcare social benefit exceeds private benefit)
and how if left to private sector will be under consumed! Lecture 1 & 2 slide 17 – basic private v public graph supply and demand (public supply line straight) Public funded means Gov spend more on it, they can reduce defecit if go private
Private health – principal-agent problem (supplier-induced demand) (moral hazard) (con)
United States spend more as a fraction of their GDP on healthcare because treatments are more expensive because doctors allow for expensive surgery (profit maximising) and private healthcare is generally more expensive than publicly provided….huge pro for public health!
Box 4. The Intractable Market Imperfections
of Private Health Insurance
Private voluntary health insurance is one area that is particularly prone to market imperfections, many of them related to information asymmetries.
Insurance may succeed in protecting some people against
selected risks, but it usually fails to cover everyone who wants to subscribe to insurance plans and often excludes individuals who need health insurance the most or who are at greatest risk of illness. This happens because insurers have a strong incentive to enroll only healthy or low-cost clients (risk selection or cream-skimming). Private insurers also have incentives to exclude costly conditions or to minimize their financial risk by using benefit caps and exclusions. This limits protection against expensive/ catastrophic illnesses.
Because of these factors, individuals who know they are at
risk of illness have a strong incentive to conceal their underlying medical condition (adverse selection). Individuals who are—or think they are—healthy will often try to pay as low premiums as possible. This prevents insurers...
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