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1) Demand for medical care and moral hazard: Some argue that providing full insurance for routine...

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Economics

1) Demand for medical care and moral hazard: Some argue thatproviding full insurance for routine mental health care will notsignificantly enhance social welfare and will lead to large socialloss from moral hazard.
a) Using a graph and a few sentences, explain why providingfull insurance for routine mental health care may lead to largesocial loss from moral hazard. Would you make the same argument foremergency mental health care? Explain in 1-2 sentences and show ona graph.
b) Suppose that instead of full insurance, the consumer had amental health insurance plan that
covers routine mental health care with a co-insurance rate of10%. Is this type of insurance plan likely to eliminate the socialloss from moral hazard? Explain why using a graph and 1-2sentences.
c) Using a graph and a few sentences, explain why providingfull insurance for routine mental health care may not enhancewelfare (e.g. increase a person’s total utility) much for a typicalconsumer. Would you make the same argument for emergency mentalhealth care? Explain why or why not in 1-2 sentences.

Answer & Explanation Solved by verified expert
4.2 Ratings (682 Votes)
Sol 1 aProviding Full insurance for routine mental health care maylead to large social loss from moral hazard as follows A person with a full insurance will likely to take expensivemedical care facility because the price for the medical carefacility for him is cheaper than before taking the medicalfacility As he will take the facility even it is not necessaryfor him which we called as social loss As in the    See Answer
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