Econ analysis

Lab 2: Medical Insurance, High vs Low Deductible

Students around University of California, Riverside often compare health plans (e.g., via parents insurance, marketplace plans, or graduate student plans). Consider a local clinic that sees patients from two insurance plan types:

• HD (High-Deductible plan): patients are more cost-sensitive when paying out-of-pocket. This plan is usually in HMO network.
• LD (Low-Deductible plan): patients are less cost-sensitive (lower cost-sharing). This plan is usually in PPO network.

The clinics resource cost per visit is the same regardless of plan:

(Think: doctor time, labs, suppliessame cost on average.)

The clinic can negotiate different patient copays (out-of-pocket price per visit) by plan type.

You have weekly data on:

• P= copay per visit (USD)
• Q= number of visits per week (units: visits/week)

You will need to prepare a report including the following information.

1. (2 pts)Estimate demand separately for HD and LD by running two regressions:

2. (2 pts) Calculate Price discrimination (two copays): choose

and

separately. What are the copays respectively? Calculate the profit.

3. (2 pts) Decide One copay policy: choose one copay for both groups. Calculate the profit.

4. (4 pts)Policy discussion: What if the clinic serves only the LD market (or only the HD market) by only be in PPO network? When might that be optimal?

(Bonus 2 pts) Bonus Question:

Incentive Compatibility via Importing Care (Out-of-network / cash-pay loophole)

Some LD patients try to act like HD by using a workaround: cash-pay telehealth or out-of-network billing to face a lower out-of-pocket price.

Let the clinic set two copays: and with .

Suppose an LD patient can instead access the HD-priced channel but must pay:

• Express admin fee (time + paperwork + portal fee)
• Tax / surcharge rate applied to (copay + fee)

Please justify the Express admin fee . Assuming Tax/surcharge rate is still 10%.