Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
5 Cards in this Set
- Front
- Back
|
LTC puzzle - Why do so few take LTC insurance?
|
- Supply side reasons and Demand side reasons
|
|
|
What are the demand side reasons for the LTC puzzle?
|
- Behavioral
- people don't always act rationally - Underestimation of risk / risk denial - Cheaper but imperfect substitutes (financial transfers from children, care by family members) - Unaffordable due to supply side - can't be more than 5% of income |
|
|
What are the supply side reasons for the LTC puzzle?
|
- Market failure
- Moral hazard, but prob not a problem in this case - Adverse selection, people more at risk will take out the insurance, leading to market failure for low risk (there will be no market for the low risk, will be priced out of market) - Systemic Risk (most important) - chance and cost of having accident happen at same time (in the future) - Time lag for LTC (paying for and receiving care) - UNCERTAINTY ABOUT FUTURE COSTS - Labor cost - very labor intensive industry, and don't know what labor cost will be in the future - Insurance companies will set a safety margin to cover costs (loading cost, up to 50% of the price) |
|
|
What are the consequences of a dual system (private and public patients)?
|
- Crowding out
- More people buy public insurance - Crowding in - More people buy private insurance b/c of lower price and cost of private insurance - Push out - Even more people stop buying private insurance due to higher quality and higher price of private insurance |
|
|
Implications of dual system
|
1) Price and waiting list as rationing device
- Waiting time may balance demand and supply and act as non-monetary price in publicly provisioned care - Incentive to reduce waiting time is increased with introduction of private patients. - By increasing waiting times, public sector can obtain a large reduction in spending if demand is elastic to waiting time 2) Cream skimming - choosing healthiest patients. - When benefit is higher for care, will go private - Ci < r 3) Length of stay - HIGH - Ci < r 4) Quality - Will choose price an quality that maximize profit - Will depend on how elastic demand is to quality - Demand may not be very dependent on quality |
