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The Structure of Incentives Built into Standard Comprehensive Health Insurance

question 17

Essay

The structure of incentives built into standard comprehensive health insurance gives no one an incentive to control health care costs.If the patient and the doctor lack any incentive to consider costs,will the output of medical services be higher or lower than if they did consider costs? Illustrate your answer with a diagram.Clearly label the welfare cost resulting from the over-consumption of medical services.


Definitions:

Vocabulary

The set of words known and used by a person in a language.

Functional Fixedness

A cognitive bias that limits a person to using an object only in the way it is traditionally used, hindering problem-solving and creativity.

Algorithm

A specific set of rules or processes to be followed in calculations or problem-solving operations, especially by a computer.

Heuristic

A problem-solving approach using practical methods or various shortcuts to produce solutions that may not be optimal but are sufficient for immediate goals.

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