1. Insurance Choice In this question, assume that only one health condition ever afflicts people. Everyone has a 10% probability of being afflicted by the condition and is aware of this fact). If afflicted, a person can receive one of seven treatment options. The WTP of afflicted consumers for each treatment option, and the price of each treatment, are given below. Assume treatment G returns an afflicted consumer to full health. Consumers who aren't afflicted consume no healthcare Treatment A B D E F G Price ($1000s) 0 20 40 60 80 105 130 WTP if afflicted ($1000s) 0 180 260 270 296 300 302 a) Using these facts, and assuming premiums are set equal to the AFP for a given plan, fill in the details for the table below. Plan options AFP Consumer's Consumer's Consumer's (5) Loss if Healthy (S) Loss if Afflicted (5) Expected Loss (S) 100% coverage 90% coverage SO 80% coverage No Insurance SO * Reminder: The consumer's Loss if Healthy equals their premium expense. The consumer's Loss if Afflicted equals the sum of their premium expense, their out-of-pocket costs for care (if they have any), and their "health loss (if they receive less than G when afflicted). b) Use your results to explain the tradeoff that consumers face in deciding between different levels of insurance coverage. Why might different consumers make different coverage choices? c) Suppose a managed care plan exists that fully covers the cost of treatment for afflicted patients, but does not cover more expensive treatment options. How popular would you expect this plan to be with consumers? Add a row to the table and work out the details as you did for the other plan options 1. Insurance Choice In this question, assume that only one health condition ever afflicts people. Everyone has a 10% probability of being afflicted by the condition and is aware of this fact). If afflicted, a person can receive one of seven treatment options. The WTP of afflicted consumers for each treatment option, and the price of each treatment, are given below. Assume treatment G returns an afflicted consumer to full health. Consumers who aren't afflicted consume no healthcare Treatment A B D E F G Price ($1000s) 0 20 40 60 80 105 130 WTP if afflicted ($1000s) 0 180 260 270 296 300 302 a) Using these facts, and assuming premiums are set equal to the AFP for a given plan, fill in the details for the table below. Plan options AFP Consumer's Consumer's Consumer's (5) Loss if Healthy (S) Loss if Afflicted (5) Expected Loss (S) 100% coverage 90% coverage SO 80% coverage No Insurance SO * Reminder: The consumer's Loss if Healthy equals their premium expense. The consumer's Loss if Afflicted equals the sum of their premium expense, their out-of-pocket costs for care (if they have any), and their "health loss (if they receive less than G when afflicted). b) Use your results to explain the tradeoff that consumers face in deciding between different levels of insurance coverage. Why might different consumers make different coverage choices? c) Suppose a managed care plan exists that fully covers the cost of treatment for afflicted patients, but does not cover more expensive treatment options. How popular would you expect this plan to be with consumers? Add a row to the table and work out the details as you did for the other plan options