The previous director of an insurance plan required no co-pay. As the new director, your first reform is to implement a co-pay. Assume that each doctor visit costs the insurance plan $40, and use the following demand curve for your enrollees: P = 50-4Q
a) Illustrate graphically the impact of $20 co-pay on the quantity of doctor visits demanded by your enrollees. What is the new quantity of visits demanded?
b) Imposing the $20 co-pay increases out-of-pocket expenditures for the beneficiary and reduce's the plan's expenditures. How much does imposing the co-pay generate (the increase in out-of-pocket expenses)?
c) How much does the reduction in visits save the insurance plan?
d) If you are competing against another insurance group, imposing the co-pay will allow you to reduce premiums by how much?