Consider Troy and Paula, Each of Whom Recently Purchased Health

Essay

Consider Troy and Paula, each of whom recently purchased health insurance with a 20% coinsurance rate (i.e., an insured person pays 20% of the price of a physician visit). Troy's demand curve for physician visits is Q_R = 6, and Paula's demand curve for physician visits is Q_P = 20 - 0.10P, where Q represents the number of physician visits and P is the price per visit. Suppose that the market price, P, for physician visits is $100.
a. Without insurance coverage, how many physician visits do Troy and Paula make?
b. Assuming a 20% coinsurance rate and market price of $100, what out-of-pocket price does Paula pay per visit with insurance coverage?
c. With insurance coverage, how many times does Troy visit the physician? Paula?
d. Explain whether Troy and Paula's purchase of health insurance created moral hazard.