In a paragraph or two compare the following two insurance

Reference no: EM13387610

Let's divide medical care into two groups: Routine and Catastrophic. We'll define Routine care as being essentially predictable and relatively cheap. Catastrophic care strikes individuals more or less randomly and is rare. Some have catasrophes, most don't, but when it does strike it is devastating and extremely costly. In the end, suppose 25% of health expenditures are for Routine care and the remainder is for Catastrophic care. In a paragraph (or two), compare the following two insurance policies: a) 25% coinsurance for all medical care (the individual is responsible for 25% of the bill); b) 100% coinsurance for Routine care, 0% coinsurance for Catastrophic care. In particular, comment on consumption smoothing, and the effect on overall expenditures from both policies.

Reference no: EM13387610

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