Problem
Sally's effective demand for healthcare can be described as P= 25-5Q where P is the price of an office visit and Q is the quantity of visits consumed. Assume that Sally's coinsurance plan is no longer available instead she has access to a high deductible health savings account plan that has a $5000 deductible and allows for $4000 in HSA How would Sally's healthcare utilization change. Why? explain your answer and illustrate on a graph.
Illustration on a graph: Plot the demand function P = 25 - 5Q on a graph with price (P) on the vertical axis and quantity (Q) on the horizontal axis. This represents Sally's original demand curve. Draw a horizontal line at the price level corresponding to the deductible amount of $5000. This represents the threshold where Sally starts receiving coverage under the HSA plan. The intersection point between the demand curve and the deductible line represents the level of healthcare utilization before reaching the deductible.
To illustrate the change in healthcare utilization, draw a vertical line downward from the intersection point to a new quantity demanded, which will be lower due to the higher out-of-pocket costs.