Tennessee provides insurance coverage for up to 25000 in ann

Tennessee provides insurance coverage for up to $25000 in annual health expenses. Of the $25000, the most that can be spent on hospital bills is $15000. Expenses above these thresholds are not covered by the state plan. Is Tennessee consistent with the theory of efficient insurance? Explain.

Solution

The main plan is not consistent with the theory of efficient insurance.

Efficient insurance requires that patients pay high out of pocket payments for health care with low expenditures and low of pocket payments for health care with high expenditures.

Here patients seem to pay nothing in out of pocket costs for relatively low levels of expenditure (less than 25000) and high expenditure care is not covered.