Jack has three types of medical expenditures: contact lenses, prescription drugs for a condition he has, and accidents and acute illnesses (such as broken bones and pneumonia). He has been paying for all of his medical expenditures out of pocket and he is now considering purchasing health insurance. The different plans he is considering offer coverage for different types of expenditures. Describe the consumption smoothing benefits and moral hazard costs of coverage for contact lenses, prescription drugs, and accidents and acute illnesses.
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