Demand and Insurance

What happens if you do not have health insurance? How much do you pay?

1. You pay all of the bill

2. full charge for doctor’s visit

   1. Instead of a $20 co-pay

   2. You pay $150

What happens when you have insurance co-payments or co-insurance

1. A payment made by the patient of a proportion of the charged price

2. The insurance company pays the rest

3. Set for each policy and type of managed care

   1. Example: 0% co-pay, 20%, 50% co-pay or $20 co-pay)

Demand curve of those with no insurance

Demand Curve of 20% Co-pay

What happens when the co-pay is lower?

the more you use health care services

people with insurance use health care services more than people without insurance even if they pay the same amount

What is the relationship between insurance and demand?

Quantity demanded will increase with decrease in out-of-pocket costs at any level (no insurancw, 20% copay, 50% copay)

• Law of demand

The demand curve will shift to the right (as compared with no insurance) with copays

• Demand increases

• the lower the co-pay % the further it will shift to the right (demand increases more)

People are more likely to use medical care if they have insurance, especially a low co-pay moral hazard

How does an insurance deductible affect demand?

1. Fixed total amount the insurer deducts from the bill; the consumer must spend this amount before insurance will pay

2. Until you spend this amount- everything out of pocket, you pay additional unit of medical care

Increased out of pocket expenses = decreased demand

Decreased out of pocket expenses= increased demand

What happens when the deductible is high?

the less demand for care

high deductible plans usually have lower premiums

insurance companies use these to save money

What happens when the deductible is lower?

the greater the demand for care