Imagine a community with only one insurance company that pro

Imagine a community with only one insurance company that provides coverage to everyone in that community (a universal/single payor insurer). Currently, the payer does not pay anything for physician office visits. However, bowing to intense lobbying pressure, insurance will pay 80% of the cost of these visits effective January 1, while the patients will be responsible for 20%. Describe the likely effect on demand curves for office visits to a physician as a result. What are intended and uninteded consequences and what do you suppose will be the intended and unintended consequences will be?

Solution

The new coinsurance of 20% will increase the cost of doctor visits, therefore demand will decrease (unless everyone falls sick with such severe illness that a doctor visit is a must!)

The demand curve will shift toward left.

The intended consequences will be two-fold: One, the insurance company will earn more savings (out of the 20% co-insurance now being paid), and two, community members will tend to pay lower number of health-maintenance physical visits, and will therefore be more health-aware and manage their health requirements better than before.

Unitended consequence is that not all community members may be able to afford the co-insurance, and may therefore refrain from doctor visit even when it is required. Two, doctors\' earnings will go down due to lower demand.