ECON 157 -- Professor Handel -- Week 3A

1

Demand for Insurance:
Information and Complexity
Week 3A
Health Insurance in Reality

ECON 157 -- Professor Handel -- Week 3A

2

Health Insurance in Reality
• Last week we talked about key aspects of consumer demand for insurance
• Choice Under Uncertainty
• Risk Aversion
• Expected Utility

• Simple model of insurance with premium p paid up front and payout q if consumer gets sick
• Similar conceptually to health insurance in reality, but details in reality are different and introduce issues of limited information and choice complexity

ECON 157 -- Professor Handel -- Week 2B

3

Health Insurance: Theory and Practice
Last week:
Health Insurance Choice in Theory

This week:
Health Insurance Choice in Practice

ECON 157 -- Professor Handel -- Week 2B

4

Remember:
Expected Utility and Insurance Contracts
AF -- Actuarially fair & full
AP -- Actuarially fair & partial
A -- Uninsurance

U(AF) > U(AP) > U(A)

ECON 157 -- Professor Handel -- Week 2B

Insurance Contracts
More Complicated Than p and q?

5

ECON 157 -- Professor Handel -- Week 3A

6

Example: Berkeley Health Insurance
• In the U.S., 60% of people get health insurance from their employers
• UC Berkeley provides subsidized health insurance to employees
• UC Berkeley experience is typical of large employers in the U.S.:
• Employer contracts with insurers to offer insurance
• Insurers form plans by bargaining rates with doctors / providers
• Employer subsidizes consumer insurance premiums
• Employees choose yearly insurance plans
• Lots of questions we’re not going to answer today:
• Why do employers provide insurance?
• Are insurers providing actual insurance, or are employers?
• Today: consumer problem only

7

ECON 157 -- Professor Handel -- Week 3A

UC Berkeley Insurance Choices
• Let’s start with the easiest things: what are choices?
Monthly Medical Plan Choices & Premiums - $51,001–$101,000 Salary
Plan

Self

Self +
Child(ren)

Self +
Adult

Family

Blue Shield Health
Savings Plan

Employee Cost
UC Contribution

$45.72
$469.85

$82.30
$843.38

$103.49
$975.98

$140.06
$1,349.52

Health Net Blue &
Gold

Employee Cost
UC Contribution

$65.54
$545.46

$116.06
$981.83

$191.80
$1,088.67

$242.32
$1,525.04

Kaiser Permanente Employee Cost

UC Contribution

$47.83
$497.19

$86.09
$892.82

$108.10
$1,033.51

$146.35
$1,429.15

UC Care

Employee Cost
UC Contribution

$108.01
$545.46

$192.72
$981.83

$281.29
$1,088.67

$366.01
$1,525.04

Western Health
Advantage

Employee Cost
UC Contribution

$47.83
$516.38

$86.09
$927.69

$108.10
$1,074.27

$146.35
$1,485.59

Core

Employee Cost
UC Contribution

$0.00
$113.19

$0.00
$203.74

$0.00
$237.70

$0.00
$328.25

8

ECON 157 -- Professor Handel -- Week 3A

UC Berkeley Insurance Premiums
• So ..how much do I have to pay no matter what?
Monthly Medical Plan Choices & Premiums - $51,001–$101,000 Salary

Plan

Self

Self +
Child(ren)

Self +
Adult

Family

Blue Shield Health
Savings Plan

Employee Cost
UC Contribution

$45.72
$469.85

$82.30
$843.38

$103.49
$975.98

$140.06
$1,349.52

Health Net Blue &
Gold

Employee Cost
UC Contribution

$65.54
$545.46

$116.06
$981.83

$191.80
$1,088.67

$242.32
$1,525.04

Kaiser Permanente Employee Cost

UC Contribution

$47.83
$497.19

$86.09
$892.82

$108.10
$1,033.51

$146.35
$1,429.15

UC Care

Employee Cost
UC Contribution

$108.01
$545.46

$192.72
$981.83

$281.29
$1,088.67

$366.01
$1,525.04

Western Health
Advantage

Employee Cost
UC Contribution

$47.83
$516.38

$86.09
$927.69

$108.10
$1,074.27

$146.35
$1,485.59

Core

Employee Cost
UC Contribution

$0.00
$113.19

$0.00
$203.74

$0.00
$237.70

$0.00
$328.25

ECON 157 -- Professor Handel -- Week 3A

9

UC Berkeley Insurance -- Doctors
• Each insurance plan allows access to different, sometimes overlapping sets of physicians and medical providers
• So ..can I see the doctors I want to now?
• Not so easy to find

• Will I be able to see the doctors I want to if I get sick?
• Even harder