The Economics of Health and Healthcare

I’m working on a economics multi-part question and need an explanation to help me study.

Trying to find detailed explanation of the below: Refer “The Economics of Health and Healthcare (Sherman Folland, Allen Goodman, Miron Stano)”. Economic terms from the book or other references should be used.


  • a. Philip wishes to purchase health insurance. He obtains quotes from several companies, but in the end, decides they are too expensive. In economics we might consider this an example of market failure. Use economic terms to explain why the market might be failing in this example. Alternatively, please provide argument(s) that it may not be failing as well. Use clear ideas of the assumptions needed for markets to function.
  • b. Philip purchased health insurance that covered 100% of the costs of his physician visits. In the year prior to purchasing health insurance, Philip saw a physician 1 time and paid $150. In the year after purchasing health insurance, Philip saw a physician 9 times and paid $0.
    • i. What is this effect of increased consumption called?
    • ii. What will the likely effect of the health insurance be on health care costs (overall, Philip, insurer) and on Philip’s health?
    • iii. If you were the insurance commissioner, what sorts of things might you do in insurance design to avoid this effect?—————————————–

    The Patient Protection Affordable Care Act (PPACA) or ‘Obamacare’ did away with insurance companies being able to evaluate individuals’ insurability based on pre-existing conditions. It also mandates that all individuals must purchase insurance.

    • a. What is the fundamental economic issue related to health insurance markets that these two components of PPACA are trying to deal with?
    • b. Let’s assume that companies were not able to deny individuals based on pre-existing conditions, but based on recent changes to our U.S. tax code, individuals were NOT mandated to buy insurance (or at least told that the mandates would not be enforced), what would happen in this market for health insurance? Tell from the perspective of insurance companies and individual insurance purchasers and explain what will they do ?
    • c. Let’s assume the mandate to buy health insurance existed, but insurance companies could change the price of their health insurance based on pre-existing conditions. What would happen to the market for health insurance?